What Happened:
Shares of luxury furniture retailer RH (NYSE:RH) jumped 5.3% in the morning session after major indices soared as yields declined after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of May 2024 came in better than expected at 3.3% year on year (versus analysts’ expectations for 3.4%).
The data also revealed that inflation was flat (unchanged) month on month. The inflation results benefitted from a 2% decline in the energy index, while shelter inflation remained sticky (up 0.4% m/m and 5.4% y/y).
Sticky inflation is exactly what has delayed the Fed’s planned rate cuts in 2024, with some market participants likely worried that inflation might stay higher for longer. Today’s report eased those worries a bit.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Is now the time to buy RH? Access our full analysis report here, it's free.
What is the market telling us:
RH's shares are very volatile and over the last year have had 24 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock gained 17.3% on the news that the company reported fourth-quarter results and provided optimistic guidance with revenue projections for the full year ahead of Wall Street's expectations. The company stated that they "expect demand trends to accelerate throughout fiscal 2024" despite a challenging backdrop due to a weak US housing market.
On the other hand, revenue and EPS fell short of analysts' estimates during the quarter. Overall, the results could have been better, but the outlook was encouraging.
RH is up 1.1% since the beginning of the year, but at $288.54 per share it is still trading 28.2% below its 52-week high of $401.84 from August 2023. Investors who bought $1,000 worth of RH's shares 5 years ago would now be looking at an investment worth $3,044.
Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.