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Takeaway: Hedgeye's Brian McGough remains the bull on Restoration Hardware.

Despite last week’s revenues disappointment, Retail sector head Brian McGough sees Restoration Hardware (RH) as the one stock in his sector that might realistically double over the coming 12-18 months. In fact, McGough thinks revenues is one area where management have their hand firmly on the controls.

Last week, when the disappointing number was released, McGough wrote “if RH didn’t have a shift in source book timing, the stock would be up $10 at this point.” McGough is being bombarded with questions about this quarter’s revenues drop, but Wall Street’s microscopic quarter-by-quarter view shouldn’t blind us to the telescopic view. The company is pulling off one of the biggest real estate transformations the Retail landscape has seen in a decade. At the same time, it pares down reinvents its Source Book strategy, and doubles its product assortment from a year-ago (while simultaneously redesigning floorsets in all its stores).

Hedgeye's McGough: Restoration Hardware Shares Could Double in the Next 12-18 Months | $RH - restorationHardware

Guidance calls for a meaningful acceleration on the top line in the back half of the year – up 600bps from the first half of 2014. With inventory and deferred revenue (custom orders and orders in transit) up 35% year over year, we have confidence that RH will hit back half revenue estimates. Wall Street’s disappointment over the second quarter revenue miss is reflected in a stock price that dropped a few points since the print – closing yesterday at $77.05.

McGough has long-term confidence in RH management’s ability to manage the increasing complexity as the business grows and transforms. If he’s right, the stock could double in the next 12-18 months. And he thinks the stock could then double again over the following 12-18 months.

That would be worth the wait.