Shares of RH (RH -13.90%) — formerly known as Restoration Hardware — are getting crushed today after the luxury home furnishings company came up short on its third-quarter report. The company reported an adjusted quarterly loss and had some stunning comments in its shareholder letter.
That led investors to dump the stock Friday morning. As of 11:05 a.m. ET, RH shares were down by 14%. The stock has now dropped by more than 33% over the last three months.
Housing is frozen
RH reported a drop in sales of about 14% year over year in the quarterly period. It led to an adjusted loss on the bottom line that surprised investors. In its letter to shareholders, the company said the rise in interest rates has left most existing homeowners with low enough mortgage rates to not want to advance.
In a comment that summed up the poor sales environment, it stated that “we continue to expect the existing housing market to remain frozen until interest rates and/or home prices fall meaningfully.” The company also will delay the release of its product catalog until the first quarter and sees discounts and promotions coming to clear out inventory.
Buy when others are fearful
The bad news offers an opportunity, according to one group of analysts. Wells Fargo analyst Zachary Fadem and his team believe that while RH still has more pain to come, the drop could furnish an opportunity to buy the stock.
The analysts believe that the next advance for interest rates will be down, and that could spur a turnaround in RH’s business, according to Barron’s. That tracks the advice that Warren Buffett has famously offered that the time to buy is when others are fearful. With a quality company appreciate RH, that might be good advice to follow now.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.
