Shares of RH (RH - Get Report) , the former Restoration Hardware, jumped more than 5% at one point Thursday, Jan. 24, after the upscale furniture retailer received a glowing report card from a Wall Street research firm, replete with a target price of $250 a share. But the gains were fleeting.
By the close of trading, shares of RH had fallen by 0.5% to $130.03.
In a note to clients, Citron Research, which is notable short-seller, heaped praise on the company, noting that "RH is to furniture what Whole Foods is to groceries," and that the company deserves "a luxury premium to its peers."
Indeed, according to the report, RH should have a significantly higher price-to-earnings multiple - more in line with high-end luxury brand LVMH Moet Hennessy Louis Vuitton SE.
"Consider this: If RH traded at Whole Foods' takeout valuation, RH would trade at $300."
-- Citron Research
"Once Wall Street wakes up and realizes that RH is to furniture what Whole Foods is to groceries, the multiple will readjust higher," the report said. "Consider this: If RH traded at Whole Foods' takeout valuation, RH would trade at $300."
Citron also pointed to the dramatic changes RH has made in its retail footprint, changing from stores to "galleries" and becoming an anchor tenant in many mallsand other high-end North American locations - at a significantly lower cost than previously.
"RH has been able to secure their new galleries at a rent per square foot that is about 50% lower than their prior mall-based stores," the report said, noting that for 2019, "all of RH's real estate deals will be capital light, where as much as 65% to 100% of the capital requirement will be funded by the landlord, versus 35% to 50% previously."
Added Citron: "And for the critics who say RH doesn't own the buildings, so what? Neither does Apple."