RH is a buy; current $2B valuation offers upside to >$400 (best case >$1000) due to early turnaround in margins/cash flow, European store profitability, strong restaurants, and improved financing via RH Compounds.

Number five of these seven stocks , oh, it's exciting , but it's risky , but it's still very cool. Do you know what it is? RH, Restoration Hardware.

Oh, this stock has been hit really bad in the last year. It's down 44% , right? In my opinion, it's a stock worth over $400 in the long run. The best case scenario for RH in the coming years is that its share price will go over a thousand dollars , right?

Now, speaking of RH or Restoration Hardware. So, nobody wants to hold this stock right now . We win We talked about Resorts, which has been in pretty much the same situation , right?

Wynn is down a little under 40 percent. Nobody wants to hold that kind of stock in a high interest rate environment. So, RH is another one, which is now at 117 , right? It's down 44 percent in the last year , right?

Now, the interesting thing about RH is, look at those two. You're getting the whole company for just over $2 billion in market cap , right ? It's a unique brand in the furniture world, and I'm thinking the whole company is only worth $2 billion , so I have to start buying it , right ?

So, I recently started buying this stock and I think I'm going to have to increase my investment here by a good amount , because the whole company is only worth $2 billion.

Remember, when this business was at its peak five years ago, margins, profits and everything else were at their highest levels, right? And obviously, before interest rates went up, we had a kind of small housing market in 2021 to 2022.

There was a bubble, right? Um, RH had a market cap of over $20 billion, I mean billions of dollars, an incredible number, really incredible number, right? And now you can get the whole company for about $2 billion.

And as a value investor, I like to invest right now, right ? And if anyone sees anything, I think there's an opportunity there, right ?

Now, RH is starting to turn around. If you look at the revenue stream of this company, it's clearly moving in the right direction. The margins have also started to increase very recently.

I'm talking about both the gross margin and the net margin. So, RH is definitely starting to turn around, and that's a good thing. We're in the very early stages of RH's turnaround , right?

Now, if you look at the company's free cash flow, it was in a very bad state a few quarters ago, and it's come back very nicely over the last 12 months , and You know, there's still a long way to go in this free cash flow story , right?

Free cash flow per share, there's a long way to go in this story , for example,

if you look at existing home sales, it's arguably the worst market in the history of the United States, even worse than the Great Recession, right? I mean, nobody's moving houses.

And even though the population in the United States is much larger than it used to be, nobody's been moving houses for the last few years. Maybe it's going to be like that forever and nobody's ever moving again.

I don't think it's going to be like that forever , right ? I think the housing market is going to turn around in 2027, 2028, 2029. And I think RH is going to be one of the biggest beneficiaries of this whole thing , right?

Now, another thing that I like about RH is that they're increasing their cash and cash equivalents. So, if you look at the stock, and this is why I was n't buying it at the beginning of the year, their cash holdings are down a lot.

It's 41 million. It came down to $125 million. But now we have some protection. Right now, cash and cash equivalents are up to $125 million , right ? And they have $772 million worth of inventory .

So, it's not like they've run out of inventory , right? So, it's good to see the cash increase . I would be more comfortable if they had about a quarter of a billion, $250 million, on the balance sheet.

But it's moving in the right direction and it makes me a lot more confident in buying the stock right now, right ? Because nobody wants to own a multi-billion dollar company that only has $41 million in cash on hand.

That's a really, really small number, right ? So, we're building. We still have to grow that number. I want it to be much bigger , right?

Now, the other thing I understand about RH is, you have to understand that in 2021, 2022, their business was doing great. They were making a lot of money. So, they became very ambitious.

And they say,“We're going to expand our business in Europe , right?” "We're going to take a big chunk of all this money and we're going to expand the business in Europe. And so, they've opened very expensive, very expensive stores in Europe , right?

RH England, RH Munich, RH Brussels, RH Madrid, RH Paris, late last year , right? RH Milan this year, RH London this year. Like, those stores are very expensive, it's a very time-consuming thing to build a business in Europe, right?

And to get their brand recognition in those big markets. So, listen , it's very expensive. But, a lot of that big expense is behind the company now and now those retail galleries are going to start making them a lot of money in the coming years.

And so, these things can go from being a money-loser to a money-maker and that changes the financial position of the company and the profit margin in a big way , right? I'm talking specifically about the net profit of the company , right?

So, listen , it's very expensive. But, a lot of that big expense is behind the company now and now those retail galleries are going to start making them a lot of money in the coming years.

And so, these things can go from being a money-loser to a money- maker and that changes the financial position of the company and the profit margin in a big way , right? I'm talking specifically about the net profit of the company , right?

Now, the other thing you need to understand about RH is, they also have a restaurant division of the business, right ? And it's incredible. On average, each RH restaurant makes $10 million a year.

So, when you hear about these restaurants, you think, "Okay, this is a furniture company, high-end furniture company, and they have restaurants." Who cares? "Actually, these are very important. $10 million is not a small amount, right?

RH's restaurant in Newport Beach is doing over $20 million a year. That's an incredible number.

Think about Texas Roadhouse. Texas Roadhouse is always packed. Texas Roadhouse makes about $8 million , right? And RH is beating even these big companies , right ? And that's incredible.

And you can say, "Well, their food at RH is a lot more expensive because they're a high-end customer and By selling high quality products , these kinds of issues are no longer a problem.

"Yeah, but at the end of the day, listen, to get those kinds of numbers, you have to do a lot of volume . It's really incredible, isn't it ? And yeah, it's really good for the RH brand.

They, they do it right. Their restaurants are top-notch.

RH Estates. Now, this is one of the game changers for RH, I don't think people realize how big of a deal it is right now. RH, they're building all these huge stores right now , right ?

And the hard part about these huge stores is, who's going to want to finance them? Suppose RH goes bankrupt, right ? Who's going to take over these stores? I mean, they're not usable anywhere else, right?

So it's very difficult to get financing for them. Landlords don't usually want to do those kinds of deals.

But the interesting thing is, they've come up with this RH Estates concept now. And I really like it. It's an open concept that they've done, right ? I do n't think It's called RH Estates.

It's going to be RH Compound , RH Compound. I've written RH Estates here. RH Compound is what they call it. It means a bunch of smaller buildings, which are much easier to build than their current big buildings.

Everything is nicely done, but smaller buildings and a courtyard, restaurants and coffee bars that connect everything, right? And ultimately multiple buildings where you can go for different purposes.

The great thing about this experience is that if you're a landowner, you can look at it and say, " Okay, I can finance this project at a much cheaper rate , because even if RH closes, it's much easier to get tenants in these commercial buildings than in the big RH buildings."

" Who else will go to that huge building of theirs if RH is closed ?"

Now, this other project is more like their own little town, I do n't want to call it a little town, but it's more like a nice strip mall, right? So you can easily find a clothing store tenant, a restaurant, a coffee bar, and an ice cream shop in it.

So it's a great idea, but yes, I think it's more accurate to call it an RH compound.

So what they're doing now is, they're testing it in Florida. They are going to open one or two locations in Florida. And I feel great about it. I like it because it's really a game changer for RH.

So you need to understand how they can change the company's financial situation and their expansion opportunities in the coming years , right ?

Now, the last thing about RH is, Gary Friedman took over the company many years ago, right ? And the company's market value was about $20 million. Almost on the verge of bankruptcy.

And look what he has built, right? From a $20 million company to a company worth over $2 billion, it was a $2 billion company even in the worst housing market conditions. Which has the potential to become a company worth over $10 billion , right? This is incredible.

So, he made a very bad decision a few years ago when he bought a lot of shares on credit. In my opinion, this was a very bad decision. Yes, it was a very bad decision because he could have bought those shares much cheaper now , right?

So, he did it. But overall, I would say he made a lot of good decisions for this company. Creating a market value of over $2 billion from a market value of $20 million in the worst housing market.

I think there's something to be said about that. So, he's a dreamer in this particular case , okay?