PreMarket Prep Stock Of The Day: RH

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Some stocks tend to defy gravity and market dynamics (at least to the co-hosts of the Premarket Prep Show) and rally to unthinkable levels. That is a very accurate description of RH RH.

Goldman Sachs Gets This One Right: If one follows analyst ratings changes enough, certain calls are not forgotten. Co-host Dennis Dick distinctly remembers way back in August of 2016, when Goldman Sachs upgraded RH from Neutral to Buy and raised its price target from $37 to $40.

Interestingly, only two months prior to that, Goldman Sachs maintained its Neutral rating, but lowered its price target from $45 to $37. Since there has been only one rating change in the issue since that time (in July 2019), it's likely there was a change in coverage at the firm.

Whatever the case may be, I am curious what the original analyst who made the bullish call in 2016 is thinking now as the issue crossed the $400 level earlier in today’s session.

What A Move Off March Low: Similar to the S&P 500 index, the issue made an all-time high in February ($256.27) and cratered in March ($73.14) for a decline of 70% compared to the index’s decline of 35%. That low came in just under its March 2018 low ($74.50).

While it underperformed the index on the way down, it blew it away on the way back up, Even from last week’s all-time closing high ($380.84), the index returned 63%. At its peak in today’s session ($410.49), it has gained 457%.

Q2 Beat Under Extraordinary Circumstances: With malls closed for much of the quarter, the company was still able to post a huge EPS beat of $1.50 along with a sales beat of $5.65 million. Also, the company announced it expects to reach 20% adjusted operating margin in FY2020 and mid single-digit sales growth.

Dick has been astonished by the company’s rapid price appreciation over the years.

"They sell couches for $5,000 that look like they came from an antique store or a garage sale," he said. "We have been dead wrong over the years in this one. I do not understand it, so do not follow us on this issue.”

Price Action: After opening far above its former all-time high from last month ($335.54), the issue had a brief retreat to $388, blasted to $410.49 and reversed course. As of 12:45 p.m. ET, it has been unable to stay above $400 and has drifted back towards the low of the day.

The full discussion on the issue from today;s show can be found here: