Bullish on RH's long-term potential given improved free cash flow and high-end niche, but waiting for significant market turbulence (S&P down 10%) and further balance sheet improvement to buy.

All righty. So, look at that. This particular stock, oh my gosh, it's down almost 80% 80% in the past 5 years, right? Absolutely incredible. But, I'm a sucker for a destroyed stock and this stock has been absolutely decimated and I'm always a sucker for them, right?

Now, this particular company is headed in the right direction in regards to its cash balance. It's as of its last quarter they announced they had almost $54 million in cash on the balance sheet.

This has been something that had been worrying me about this company. The cash balance had gotten down to $30 million and I'm like, "Oof, for a company this size, not good." So, cash balance hasn't quite doubled, but it's getting close to there, right?

That's something that gives me some some interest.

Listen, it's RH. RH, if you don't know, is a very high-end furniture company. This is a stock I've tracked for years and I will say I'm the closest to buying the stock that I've been, right?

And so, this is a high-end furniture company. This is what their stores look like. Some of you guys might be familiar with it, some of you might not be familiar with it. Uh for many of their stores they also put a high-end fancy restaurant on the top level as well and their food's actually amazing.

As anybody that's ever been to the RH restaurants, well, they're going to tell you the food's amazing, but food's not how they make money. They just put those food locations just to give them give people another reason to go to these go to these stores essentially, right?

Cuz it's a furniture store. And so it just gives them more exposure of like having these very fine dining restaurants on the roof. People go there, they have a great meal and they just kind of be associated with a brand even if they're not a customer.

restaurants, well, they're going to tell you the food's amazing, but food's not how they make money. They just put those food locations just to give them give people another reason to go to these go to these stores essentially, right?

Cuz it's a furniture store. And so it just gives them more exposure of like having these very fine dining restaurants on the roof. People go there, they have a great meal and they just kind of be associated with a brand even if they're not a customer.

And this is, you know, what their stores look like. Absolutely incredible, right? And their furniture is very expensive, very nice.

Now, when it comes to this company, right? There's something happens recently that gives me some more confidence in the future of this business. And it's they turn their free cash flow positive, right?

Now, over here what you're seeing for these numbers here, keep in mind their fiscal year ends at the in January of each new year, right? So, when you're looking at 2026 numbers, just understand that's really 25 numbers.

When you're looking at 25 numbers, understand it's really like 2024, right? When it comes to calendar year, right?

But last year, they brought in free cash flow about 250 million, but that was after the previous year they had a free cash flow negative. The previous year, free cash flow negative, right?

And so last time they had free cash flow positive was really like the year 2022, even though once again it's their fiscal year 2023. And then before that, they had really positive free cash flow of almost, you know, a half a billion dollars and that was really 2021.

That's when their business was peaking during, you know, right after the shutdowns and all that sort of stuff, right?

So, I love a company like RH. And the reason I do, right? In a business model like an RH is if you know me, you know I really like to bet on the high-end companies, right?

Now, when it comes to furniture, it's very important you understand this, okay? They might be a more niche market, but you got to understand that the the amount of money people spend on furniture goes up dramatically depending upon what caliber of home they have, right?

So, that's the thing I really like about RH, they really, really cater to the high-end, and that market spends big money on their products, right? Now, next thing I'll say here, right, is when would I buy a stock like this?

Listen, I'm closer to buying a stock than I've ever been, right? Um I would like to start a position, but I would like to start a position when the S&P 500 goes through some some turbulence, let's call it, right?

I would like it to buy the stock when the S&P 500 is like down 10% or more from its recent highs, right? Right now, we're still too close to an all-time high. We're not at all-time highs right now, but we're still too close for me to really start a position cuz RH always gets hit when the market gets hit as well, right?

So, assuming I can see RH continuing to build next earnings will come out probably in about a month. Assuming they continue to build cash in the balance sheet, that gives the business more protection, and assuming we have some sort of, you know, I don't need the market to crash to buy at RH.

I just need a down move in the market that's something of significance, right? We get that and I could see myself starting a position in a company like RH and being very, very interested, right?

Now, keep in mind when this company was at its peak before, they were bringing in net income of, you know, $500 to $700 million. So, if you could go back to those places, which I think it will be able to do over the coming years, you could be talking about a 5 to 7 billion dollar market cap.

Right now, the market cap's in the twos, right? Super long-term, as long as this company never goes bankrupt and they make it out to the other side, continue to build their brand, they can long, super long-term like they get to a billion dollars a year in net income.

And that, you know, this company should never probably trade at a very high P/E ratio. So, I'd probably slap a 12 to 15 P/E ratio on this one, right? So, at that particular time, you probably get a 12 billion to 15 billion dollar market cap, right?

And right now, once again, the market cap's in the $2 billion range.

So, yeah, we get the stock down some more, balance sheet gets a little better, some turbulence in the market, and then I have some asymmetric upside in the stock. That gets very intriguing.

Now, you got to always kind of look at it something like this and say, "What is his closest competitor?" Cuz it's really hard to say there's it's super close competitor to RH, cuz they're in such the high market, right?

They're really interior design. Most of their competitors, competitors if you want to call them that, they don't have scale. And so, it's really tough to compete with RH, but if I was to say this is a closest competitor to RH, it's this company.

And RH has a long way to go as they continue to build that brand, but Gary's done a good job over time. He made a big huge mistake. You know, the only thing I really disagree with Gary on over the years, cuz I once again, I tracked this company forever.

The only big mistake he made was he did a huge share buyback a few years ago at a bad price and a bad market in my opinion. And um he thought I think he could time the bottom, and he just got it wrong.

He put the balance sheet in a really bad position. So, if the balance sheet was in the great position it used to be in, I would already be buying the stock right now. Instead, I'm like, mhm, I'll wait for the the the very best price on this one, right?

And you know, there's other stocks out in the market that I'm always looking to buy as well. So, you know, RH, a company like RH has to fight against other companies for my money. It's something to keep in mind here, right?