Luxury brand could be comfortable investment
Sun., April 24, 2022
RH, the high-end home furnishings chain formerly known as Restoration Hardware, isn’t your typical home furnishings company.
It’s a luxury brand known for selling things like $3,000 armchairs and $4,000 coffee tables. While the home furnishings industry is highly competitive, RH faces much less competition at the luxury price point than midrange retailers like Wayfair do.
Along with its designer products, the company also distinguishes itself with an enormously successful membership model, which offers customers a discount of 25% and other benefits for a $175 annual fee.
As of January 2021, RH had 434,000 members who drove 97% of its revenue in its core business.
The membership program should also help cushion the company from economic volatility, as it essentially creates a built-in customer base.
Management plans to keep growing the company by expanding abroad and by widening the scope of its offerings. It’s opening its first hotel in New York City, and will make two Gulfstream airplanes and a yacht available to be chartered, as it works to make RH a luxury lifestyle brand beyond home furnishings.
With a clear track record of success and a CEO who aims to push the boundaries in luxury home goods, RH still has a lot of room to grow.
Long-term investors may want to take advantage of a recent drop in share price. (The Motley Fool owns shares of and has recommended RH.)
Ask the Fool
Q: What are “I bonds”? – P.G., Mansfield, Ohio
A: Series I savings bonds are offered by the U.S. government with interest payments that are adjusted for inflation.
You can buy as little as $25 worth or as much as $10,000 per year (per individual) at TreasuryDirect.gov.
The interest paid by “I bonds” has two components – a fixed rate and a variable rate adjusted twice a year to account for inflation.
At the time of this writing, the rate was a robust 7.12% for bonds bought through April 2022. (Inflation has been unusually high recently, resulting in the high rate.)
The I bond has a “maturity,” or lifespan, of 30 years, and the interest you earn on it is paid when you redeem it. You can redeem it as soon as one year after buying it, but you’ll forfeit the last three months of interest.
After five years, you can redeem the bond without penalty.
I bonds can protect your money, but your long-term dollars are likely to grow much faster in stocks.
Q: I’ve been investing directly in a certain company’s stock for a long time without paying any broker commission fees. Is that smart? – S.B., St. Augustine, Florida
A: There’s nothing wrong with it. You’re probably investing via a direct investing plan or dividend reinvestment plan (“DRIP”). Such plans have existed for many years and are offered by lots of companies. These days, though, many brokerages will also reinvest your dividends in more shares (or fractions of shares) of your stocks.
And many brokerages also don’t charge any trading commissions. Learn more at this URL: Mot.ly/drip.
My dumbest investment
My dumbest investment was buying shares of a company in the marijuana business.
I bought it after very little research, knowing only that weed stocks were rising. Now it just sits in my portfolio and stares at me – with its loss of 50%. I’m hoping it rises a bit so I can sell. – V., online
The Fool responds: You started off well, noticing a sector that was experiencing a lot of growth – more states and countries have been legalizing the use of marijuana, both medical and recreational.
High-growth sectors can be great places to spot high-growth companies – but it can also be hard to figure out which companies will dominate in the future, and which will fizzle out.
With lots of marijuana companies around these days, many are lowering prices in an attempt to boost their market share.
That can be an effective strategy, but it can also lead to shrinking earnings and perhaps prolonged losses.
Think twice about hanging on to your shares in the hope of a rebound. Some research into the company may be in order.
If you don’t have much confidence about its future, just sell, take the loss and focus on one or more stocks that are more promising.
Otherwise, you may end up waiting a long time while many great alternative stocks grow in value.
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