The pinnacle of stock picking? Unearthing that ever-elusive "multibagger" that returns its purchase price multiple times over. We're talking over the course of a few years, not decades-long investments.
Not only did our Retail analyst Brian McGough find one, he found a tenbagger. And he thinks it's still got a lot of room left to run.
Tenbaggers are the diamonds of stock mining. The term was originally coined by legendary Fidelity Magellan Fund manager Peter Lynch in his book, One Up On Wall Street. Doubling or tripling an investment is a huge win for anyone. Getting 10X on an investment? That's a big, shining jewel in your investing crown.
In 2013, when Restoration Hardware (RH) was trading around $60, most "Old Wall" Street analysts' valuation models had the stock stuck in the $70-80 range. McGough saw something powerful brewing other analysts didn't. His research enabled him to brush off lowball price targets and go bold with a $175 price target.
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In case you didn't already know, the vast majority of Wall Street analysts are afraid to stray from the pack, let alone make headlines with a diverging target. Precious few have the wherewithal to upset their corporate controllers via an "underweight" or "neutral" rating. Hedgeye is unique. We remain unshackled from ubiquitous conflicts of interests inside Wall Street banks issuing price targets, competing to advise on M&A, and providing corporate banking services often to the same firm. This freedom allowed McGough to call a diamond a diamond. |
McGough has had a storied 27+ year career as an analyst. Prior to Hedgeye, he was an Executive Director in equity research at Morgan Stanley. Before that, he was Director of Investor Relations at Nike. For the last dozen years or so, he's been fading Wall Street B.S. and finding the best names for his subscribers.
Below, we're giving you complimentary access to his updated analysis and his research over the years, following both positive results and downswings.
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McGough's original call in 2013: "Most people have a target around $70-$80... I'm at $175. I loved this name at its $28 IPO, and as our research evolved, I like it even more at $62. I'll also like it at $100; that's how much upside there is."
McGough in September 2015 ($RH trading in the $90's): "It's not over, in fact, it's actually just starting."
Following a rough earnings preannouncement in February 2016, McGough wrote a note to his customers sticking with his long call, but without ignoring the downside catalysts in order to give a perspective on both sides.
"As the mega bulls on Restoration Hardware (RH), this preannouncement is a clear kick in the gut."
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"We think $RH knew it had to preannounce, so it put the highest octane it could find in the preannounce-o-meter. All in, this stock is trading at 14x what we think is a trough earnings level. An all-out recession gets us $2.50 x 12, or $30. An acceleration in 2H with all its growth drivers (that no one cares about today) gets back above $100 in a year. We could talk about the 2-3 year earnings/multiple upside – but admittedly that does not matter now. How we see it, there’s $60 up and $10 down. We can search all year for better odds, and still never find it in US retail." |
READ BRIAN'S FULL 2016 NOTE HERE
The buck doesn't stop there. On September 8, 2021, Brian went in BIG on his 'Best Idea' Long, calling for $RH to hit $2000+.
His key takeaway: The TAIL earnings power is so much higher than the Street thinks – it’s almost ridiculous. It also gets us to a $2,000+ stock.
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"The question then is what this is worth. We could easily argue that this is worth 40x-50x earnings given the characteristics noted above. That suggests a $2,000-$2,500 stock in five years vs sub-$700 today. Again, you need to really look out past year 1 and 2 and get creative and imaginative as to what this team can execute on a global scale as it builds up an ecosystem around the high-end home and the luxury consumer. You can debate our modeling assumptions – or the speed at which the company can get this global growth plan done. You can also correctly assume that somewhere down the line, there will be a miss, a negative trend, a slowing of the category overall, and some brutal days for the stock. But it’s undeniable to us the trajectory of where this company, this model, and ultimately the stock are all headed. Best Idea Long. |
READ BRIAN'S FULL UPDATED ANALYSIS ON $RH
Until recently, Brian's institutional buyside clients got first dibs on his stock calls. Recently however, he opened up his research to all investors via his RETAIL PRO subscription.
Retail Pro includes inside access to Brian's updated position monitors including all of his long and short positions, stock analysis, as well as his fireside chats (recent guests include the CEO, CFO & CMO Playboy (PLBY), a Best Idea Long call, short selling provocateur Marc Cohodes, and many more top-tier investors and management teams).
To learn more about how to get access to the best Retail Research on the Street, click here.
