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Storm The Castle Stock Of The Day: Restoration Hardware Holdings (RH)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Restoration Hardware Holdings ( RH) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Restoration Hardware Holdings as such a stock due to the following factors:

  • RH has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $58.9 million.
  • RH has traded 1.1 million shares today.
  • RH is trading at 1.70 times the normal volume for the stock at this time of day.
  • RH crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in RH with the Ticky from Trade-Ideas. See the FREE profile for RH NOW at Trade-Ideas

More details on RH:

Restoration Hardware Holdings, Inc., together with its subsidiaries, is engaged in the retail of home furnishings. Its product categories include furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware, and children's furnishings. RH has a PE ratio of 147.7. Currently there are 8 analysts that rate Restoration Hardware Holdings a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for Restoration Hardware Holdings has been 936,500 shares per day over the past 30 days. Restoration Hardware has a market cap of $2.6 billion and is part of the services sector and retail industry. Shares are down 4.8% year-to-date as of the close of trading on Monday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Restoration Hardware Holdings as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 3.6%. Since the same quarter one year prior, revenues rose by 18.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • RESTORATION HARDWARE HLDNGS reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, RESTORATION HARDWARE HLDNGS turned its bottom line around by earning $0.42 versus -$0.34 in the prior year. This year, the market expects an improvement in earnings ($2.20 versus $0.42).
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • 38.73% is the gross profit margin for RESTORATION HARDWARE HLDNGS which we consider to be strong. Regardless of RH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.64% trails the industry average.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Specialty Retail industry and the overall market, RESTORATION HARDWARE HLDNGS's return on equity significantly trails that of both the industry average and the S&P 500.

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