Lone Pine Capital, the firm founded by Steve Mandel (Trades, Portfolio), disclosed this week that it established a new position in RH (RH, Financial) according to GuruFocus Real-Time Picks, a Premium feature.
A former mentee of Julian Robertson (Trades, Portfolio)’s Tiger Management, Mandel founded Greenwich, Connecticut-based Lone Pine as a long-and-short equity firm. Lone Pine invests in public equity markets around the globe using fundamental analysis and bottom-up stock picking to build the equity portfolio.
Transaction details
Lone Pine purchased 1,089,837 shares of RH (RH, Financial), giving the position a 2.55% weight in its equity portfolio. Shares traded around $661.64 on the July 16 transaction date. The stock is significantly overvalued based on Tuesday’s price-to-GF-Value ratio of 3.66.
Lone Pine joins several gurus with large holdings in RH, including Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) and Daniel Loeb (Trades, Portfolio)’s Third Point.
Company background and financial strength summary
Formerly known as Restoration Hardware, the Corte Madera, California-based company operates a network of luxury retail stores that sells furniture, lighting, textiles, bath and décor. GuruFocus ranks RH’s financial strength 5 out of 10. Although the company has a strong Altman Z-score of 4.85, its interest coverage and debt ratios are underperforming more than 60% of global competitors.
Company profitability summary
RH’s profitability ranks 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 8 out of 9 and an operating margin that has increased approximately 29.4% per year on average over the past five years and is outperforming more than 92% of global competitors.
Despite strong profit margin growth, RH has a one-star business predictability rank and a three-year revenue growth rate that outperforms just over 69% of global cyclical retail companies.
See also
As of the March quarter filing, Lone Pine’s $27.53 billion equity portfolio contains 38 stocks with a turnover ratio of 19%. The top three sectors in terms of weight are technology, communication services and consumer cyclical, with weights of 39.07%, 22.01% and 20.06%, respectively.
Lone Pine’s top consumer cyclical holdings include Amazon.com Inc. (AMZN, Financial), Farfetch Ltd. (FTCH, Financial), MercadoLibre Inc. (MELI, Financial), L Brands Inc. (LB, Financial) and Carvana Co. (CVNA, Financial).
