Restoration Hardware’s (NYSE: RH) latest earnings report was not what investors were looking for. With “softening demand” and conservative guidance, RH stock fell significantly in after-hours trading.

Although shares prices rebounded Wednesday slightly, RH stock is down over 17% since then. Furthermore, after hitting an all-time high above $744 per share, RH shares are have lost over 56% of their value.

The luxury home furnishing company thrived during the pandemic as consumers turned to work from home and remodeling during lockdowns. In fact, a study from Harvard shows that close to 80% of homeowners started at least one project during the pandemic.

As a result, demand for Restoration’s products soared, and the business became an investor favorite. The company feels the pressure as growth slows down, and several risks threaten profits.

Is now the time to buy RH stock? Keep reading to find out what to expect next.

Why Is RH Stock Trending?

After reporting Q4 earnings on Tuesday, investors and analysts quickly dismissed the once-favorite luxury retailer. Despite beating bottom-line estimates, the company missed revenue targets while providing less than ideal guidance.

• EPS: 5.66 vs 5.59 Exp
• Revenue: 902M vs 931M Exp

Moreover, net income soared 66% to $767M as margins increased. Then again, it was more the comments from CEO Gary Friedman that alarmed investors.

On the earnings call, Friedman references a clip from the movie The Big Short where the housing market collapses. He started the quote with, “I don’t want to scare everybody…” and it seems that set the tone for investor expectations.

Meanwhile, Friedman may have a good reason for concern. He mentions this being one of the “most difficult guides since 2008 and 2009.” Considering the war in Ukraine and rising inflation together with the Federal Reserve (fed) raising rates, it could be trouble brewing for the economy.

In particular, the company is most concerned with record-high housing prices, questioning its sustainability. And lastly, sea shipping is a concern as rising rates further cut into profit margins.

So, you can see why the company is cautious with its guidance going forward. If any of these factors escalate, it could be detrimental. At the same time, there is reason to be optimistic about RH stock as we advance.

What Makes Restoration Hardware Special?

Despite the recent “doomsday calls,” Restoration is in a unique position. For one thing, the company offers best-in-class products that take luxury living to the next level.

The retailer offers upscale options for…

• Interiors
• Outdoors
• Beach & Ski Houses
• Baby, Child, & Teen
• Showrooms for Display

At the end of the quarter, the company had 67 total galleries and 38 outlets. What’s more, the company is expanding into hospitality and entertainment to expand its market.

So far, the company is aiming for restaurants, hotels, and yachts to support brand growth. The luxury retailer is also launching The World of RH, an app for customers to explore the brand.

Not only is Restoration Hardware looking to become the premium home retailer, but they want to become a global disrupter.

Considering everything, RH has plenty of room left for growth internationally and with product expansion. If you buy into the long-term vision, you may find value at these prices. Then again, the risks are real.

Risks to Consider

A healthy housing market has helped RH stock scale and grow incredibly. Not only that, but the low-interest environment promoted consumers to spend more. As a result, RH saw net income, EPS, and FCF soar to record levels. All while gaining market share and growing the brand.

However, is it sustainable with home prices hitting record levels and inflation soaring almost 8% in the past year? This is the question Friedman was trying to get at on the earnings call.

Because the thing is, with the fed expecting to raise rates seven times this year, it could hurt housing or, worse, cause a recession.

At the same time, raw material prices are soaring. With the price of oil higher, it costs more to ship goods. A major method RH uses to deliver its products. Not only that, but the company mentions that the war in Ukraine is also slowing business. All of these factors are essentially out of RHs control.

And lastly, raw material shortages are another concern if tension continues escalating.

RH Stock Analysis

After the pandemic, RH stock was one of the best growth stocks to own, exploding over 900% from its lows. Yet after peaking, RH stock is down over 40% this year alone.

The selloff is again approaching oversold levels on the Relative Strength Index (RSI) after the earnings fallout. But several analysts doubt the company’s comeback with lower price targets. For example, Goldman Sachs, Cowen and Citigroup all lowered their marks.

At the same time, the selloff is creating value in share prices. The company’s forward P/E is 15, half of what it was a year ago.

And if you account for growth, it becomes even more evident. With a PEG ratio of 1.08, RH stock is cheaper than competitor Williams-Sonoma (NYSE: WSM) at 1.28. But WSM does offer a dividend where RH does not.

RH Stock Forecast: What to Expect Next

Investors have a lot of information to process from the company’s last earnings. The report left more questions than answers. With this in mind, we could see further pressure on RH stock if things escalate, as the CEO implies.

At the same time, this could be just another bump in the road, and everything goes according to plan. The famous Warren Buffett quote “be greedy when others are fearful” may come into play here.

For example, say inflation does calm, and the war in Ukraine ends. In that case, RH stock will be in demand again. However, this is a big “if,” RH has built a business capable of scaling and reaching new markets. The expansion into restaurants and hotels should further improve brand awareness.

Another key point to consider is the distribution of wealth. According to the Federal Reserve website, the top 1% owns over 45% of the wealth in the U.S. This is much higher than any other year on record. And close to a 50% increase from the start of 2020 with 31% of the share.

The shift in wealth is good news for RH being wealthy consumers are its target market. In the long run, RH stock should be able to recover from this as inflation cools.

Finally, expect more of a roller coaster ride in the short-term as the company prepares for the coming economic changes.