Lifestyle brand and omnichannel retailer Arhaus (NASDAQ:ARHS) continues to show its strength with record revenue, a debt-free balance sheet, and a pending special cash dividend. Arhaus plans to leverage its strong financial position to fuel further growth, as shown by its ambitious plans to expand its showroom footprint in 2024. The stock is up over 68% in the past year and trades at reasonable valuations. Buffettologists, pay heed.
Solid Track Record
Arhaus is a lifestyle brand and omnichannel home furnishings retailer. The company has exposure to big-ticket spending in an industry where demand has been depressed. Industry watchers anticipate that these circumstances could potentially turn positive over the next few years if interest rate reductions come into play.
However, the industry’s challenges seemingly haven’t slowed down Arhaus. The company finished 2023 with a record net revenue of approximately $1.3 billion, net income of $125 million, an adjusted EBITDA of $203 million, over $223 million in cash and cash equivalents, and a debt-free balance sheet.
Due to the recent robust cash generation and financial stability, Arhaus declared a special cash dividend of $0.50 per share to be paid out to shareholders of record at the close of business on March 21, 2024.
Robust Outlook
After announcing Q4 results that exceeded expectations, CEO John Reed enthusiastically outlined the business plans for the coming year, emphasizing Arhaus’ robust financial position as a launchpad fueling future growth.
Reed announced that the company plans to open nine to eleven new showrooms in 2024, including renovations, relocations, and expansions.
Arhaus expects revenues in Q1 and FY24 to be between $260 million and $270 million and $1.33 billion and $1.37 billion, respectively. FY24’s prediction surpassed consensus estimates.
Stock Movement and Valuation
Over the last 90 days, ARHS stock has risen about 54% to $14.90. It is trading towards the top of its 52-week range of $6.75-$15.59. The stock shows positive price momentum, trading above the 20-day ($13.11) and 50-day ($12.24) moving averages.
Despite the recent price run-up, ARHS stock still trades in fair-to-undervalued territory. Its price-to-earnings ratio of 14.76x is below the Consumer Cyclical sector average of 18.27x and the Home Improvement Retail industry average of 22.46x.
Strong price momentum and a reasonable valuation make for an attractive mix. However, the Relative Strength Index (RSI 14) of 73.22 indicates that the stock is heading into overbought territory. Consequently, investors should be on the lookout for a breakdown in the upward trend that could inject price volatility in the short term.
What is the Price Target for ARHS in 2024?
Analysts covering the stock have been bullish. Most have raised their price targets across the board based on better-than-expected Q4 results, an unexpected special dividend, and upbeat 2024 guidance.
ARHS currently scores a Strong Buy rating based on eight Buys versus only one Sell recommendation in the past three months. The average ARHS price target of $16.61 represents an upside potential of 11.48%.
Big Picture
Arhaus’s robust cash flow and a strong, debt-free balance sheet, combined with its growth strategies, indicate a solid potential for positive returns. The investment opportunity is reminiscent of the sage advice of investing legend Warren Buffett – “It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
The stock might face price volatility in the short term. That said, with a lucrative dividend offer, an optimistic 2024 forecast, and the stock trading in the fair-to-undervalued territory, Arhaus certainly appears more wonderful than fair for the long-term investor.
