Introducing Valuation Models! 
Key Takeaways:
- The 2-Minute Valuation Model values RH stock at $260 per share in 2 years.
- That’s a potential 38% upside from today’s price of $189 per share.
- RH stock is projected to grow EPS by 250% over the next 3 years as international expansion accelerates.
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RH (RH) has transformed from a nearly bankrupt catalog business into what CEO Gary Friedman calls “the leading luxury home brand in the world.”
With an ambitious vision to create “the most inspiring and immersive physical experiences” through galleries that blur the lines between residential and retail, RH has built an ecosystem that includes design services, restaurants, and hospitality experiences across multiple countries.
Despite operating in what Friedman describes as “the worst housing market in almost 50 years,” RH continued its industry-leading growth, achieving a 12% revenue increase in fiscal Q1 and maintaining robust adjusted EBITDA margins of 13.1%.
The company’s European expansion is accelerating, with RH England gallery demand up 47%. Over the next 12 months, the company plans to open flagship locations in Paris, London, and Milan.
With RH stock now trading around $189 per share, the company presents a compelling opportunity for investors seeking exposure to luxury consumer discretionary spending and global brand expansion during a housing market recovery.
Let’s examine why RH looks attractive using our 2-Minute Valuation Model.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings-per-share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why RH Stock Looks Undervalued
Forecast
Based on analyst estimates, RH is expected to achieve remarkable earnings-per-share growth over the next three years, benefiting from international expansion and the housing market recovery.
EPS is projected to grow from $5.39 in fiscal 2025 to $18.88 by 2028, a 250% total increase driven by operational leverage and global platform expansion.
This earnings growth for RH stock is likely to be driven by:
- European Expansion: RH England is up 47%, with $46 million in expected total demand. Upcoming flagship openings in Paris, London, and Milan could unlock significantly larger, high-end markets.
- Platform Leverage: RH plans to accelerate to 7–9 new gallery openings per year using capital-efficient “design compounds,” which cost about half as much as traditional galleries.
- Housing Market Recovery: RH is operating through the worst U.S. housing market in 50 years, with just 4.06 million existing home sales despite a population of 341 million. A market rebound could drive substantial upside.
- Margin Expansion: Management expects 20–21% adjusted EBITDA margins even in today’s tough environment, with further upside from operating leverage as housing activity improves.
For our valuation, we estimate that RH stock will reach $18.50 in EPS by 2027.
Check out RH’s full analyst estimates (It’s free) >>>
Is RH Stock Undervalued Right Now?
RH stock trades at around 16x forward earnings, which is below its long-term historical average P/E of 24x, as shown in the valuation chart.
Given the company’s unique luxury positioning, global expansion opportunity, and operational leverage potential during housing recovery, a forward P/E multiple of 14x appears reasonable for our conservative valuation.
Fair Value of RH Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $18.50
- Conservative forward P/E multiple: 14x
Expected Normalized EPS ($18.50) * Forward P/E ratio (14x) = Expected Share Price ($260)
The 2-year expected RH stock price we would get from this valuation is $260 per share.
With RH stock currently trading at around $189 per share, this implies a potential upside of 38% over the next two years or a 17% annualized return.
RH stock is well-positioned to deliver exceptional gains to shareholders as the company executes its global expansion strategy and benefits from normalization in the housing market.
Remember, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is the Average RH Stock Price Target?
Analysts are increasingly optimistic about RH’s growth prospects. The consensus RH stock target price is approximately $258 per share, indicating analysts see about 37% upside from current levels.
Risks to Consider
Despite the bullish outlook, investors should be aware of several risks that could impact RH’s growth trajectory:
- Housing Market Dependency: RH is highly exposed to the housing cycle and is currently operating through the weakest market in 50 years, with just 4.06 million existing home sales. The timing of a recovery remains uncertain.
- High Debt Load: The company carries $2.2 billion in debt, largely due to aggressive share buybacks. This adds interest expense pressure and increases financial risk in a high-rate environment.
- Tariff Exposure: RH is reducing its China sourcing from 16% to 2%, but absorbing tariff costs during the transition could temporarily weigh on margins.
- Execution Risk Abroad: The upcoming global expansion into Paris, London, and Milan involves complex execution in unfamiliar markets with different consumer tastes and operational challenges.
TIKR Takeaway
RH presents a unique investment opportunity in the luxury home furnishings sector, positioned for explosive growth.
The potential upside for RH stock is driven by unprecedented global expansion into iconic locations, operational leverage from housing market recovery, innovative retail concepts that cannot be replicated online, and a visionary leadership team with proven execution capabilities.
While near-term challenges, such as those surrounding housing markets and debt levels, create volatility, RH’s transformation from a catalog business to a global luxury ecosystem demonstrates the company’s ability to reinvent industries.
CEO Gary Friedman’s bold vision of creating “the most inspiring retail experiences that have ever been opened anywhere in the world,” combined with strategic investments during the housing downturn, positions RH to capture an outsized market share when conditions normalize.
Management’s focus on creating “strategic separation” through investments in iconic global locations, hospitality experiences, and bespoke design services builds competitive moats that Warren Buffett would appreciate.
Is RH stock a buy over the next 24 months? Use TIKR to check the stock’s analyst price targets and growth forecasts to see if it is undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
