Critical Review: Restoration Hardware Holdings (RH) and Pier 1 Imports (PIR)

Pier 1 Imports (NYSE: PIR) and Restoration Hardware Holdings (NYSE:RH) are both small-cap retail/wholesale companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, analyst recommendations, earnings, valuation, institutional ownership, risk and dividends.

Analyst Ratings

This is a summary of current recommendations and price targets for Pier 1 Imports and Restoration Hardware Holdings, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Pier 1 Imports 4 11 2 0 1.88
Restoration Hardware Holdings 1 13 3 0 2.12

Pier 1 Imports presently has a consensus target price of $5.90, suggesting a potential upside of 34.40%. Restoration Hardware Holdings has a consensus target price of $54.87, suggesting a potential downside of 2.02%. Given Pier 1 Imports’ higher probable upside, analysts clearly believe Pier 1 Imports is more favorable than Restoration Hardware Holdings.

Valuation and Earnings

This table compares Pier 1 Imports and Restoration Hardware Holdings’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Pier 1 Imports $1.82 billion 0.20 $134.14 million $0.41 10.71
Restoration Hardware Holdings $2.24 billion 0.83 $170.90 million $0.35 160.00

Restoration Hardware Holdings has higher revenue and earnings than Pier 1 Imports. Pier 1 Imports is trading at a lower price-to-earnings ratio than Restoration Hardware Holdings, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Pier 1 Imports has a beta of 1.7, suggesting that its share price is 70% more volatile than the S&P 500. Comparatively, Restoration Hardware Holdings has a beta of 1.47, suggesting that its share price is 47% more volatile than the S&P 500.

Insider & Institutional Ownership

86.0% of Pier 1 Imports shares are held by institutional investors. 5.6% of Pier 1 Imports shares are held by insiders. Comparatively, 18.8% of Restoration Hardware Holdings shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Dividends

Pier 1 Imports pays an annual dividend of $0.28 per share and has a dividend yield of 6.4%. Restoration Hardware Holdings does not pay a dividend. Pier 1 Imports pays out 68.3% of its earnings in the form of a dividend. Pier 1 Imports has increased its dividend for 4 consecutive years.

Profitability

This table compares Pier 1 Imports and Restoration Hardware Holdings’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Pier 1 Imports 1.82% 13.96% 4.53%
Restoration Hardware Holdings 0.66% 6.42% 2.55%

Summary

Pier 1 Imports beats Restoration Hardware Holdings on 9 of the 17 factors compared between the two stocks.

About Pier 1 Imports

Pier 1 Imports, Inc. is an importer of home decor and furniture. The Company’s operations consist of retail stores and an e-commerce Website conducting business under the name Pier 1 Imports, which sells a range of decorative accessories, furniture, candles, housewares, gifts and seasonal products. The Company’s categories of merchandise include decorative accessories and furniture. The decorative accessories category includes decorative accents and textiles, such as rugs, wall decorations and mirrors, candles, fragrance, gifts and seasonal items. The furniture category includes furniture and furniture cushions to be used in living, dining, office, sunrooms and patios. This merchandise group is generally made of metal or handcrafted natural materials, including rattan, pine, acacia, oak and other woods with either natural, stained, painted or upholstered finishes.

About Restoration Hardware Holdings

RH, formerly Restoration Hardware Holdings, Inc., is a retailer in the home furnishings marketplace. As of January 28, 2017, the Company had two segments: RH Segment and Waterworks. It offers merchandise assortments across a range of categories, including furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware, and child and teen furnishings. The Company classifies its sales into furniture and non-furniture product lines. The Furniture category includes both indoor and outdoor furniture. The Non-furniture category includes lighting, textiles, fittings, fixtures, surfaces, accessories and home decor. The Company’s business is integrated across its channels of distribution consisting of its stores, Source Books and Websites. The Company also owns a controlling interest in Design Investors WW Acquisition Company, LLC, which owns the business operating under the name ‘Waterworks’.

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