Is Small Cap Stock Restoration Hardware Holdings (RH) a Buy? WSM, ETH & NTZ

On Friday, small cap stock Restoration Hardware Holdings (NYSE: RH) made a spectacular re-debut in an IPO that surged, meaning its worth taking a closer look at it and other furniture stocks like Williams-Sonoma (NYSE: WSM), Ethan Allen Interiors (NYSE: ETH) and Natuzzi, S.p.A (NYSE: NTZ). To begin with, Restoration Hardware Holdings calls itself one of the fastest growing and most innovative luxury brands in the home furnishings marketplace with 73 retail stores (including 71 Galleries and two full line Design Galleries, and 10 outlet stores) throughout the United States and Canada. The company had gone private in 2008 in a management led buyout and then it had at least two years of losses before returning to profitability this year thanks in part to a repositioning itself into an upscale home-furnishings products company. Revenue is also up 53% since 2009 and there has been 10 consecutive quarters of double-digit net revenue growth up to the quarter that ended July 28th. Hence and in the IPO, Restoration Hardware Holdings’ shares were priced at $24 but ultimately they rose 29.58% to close at $31.10 for a market cap of $1.15 billion. Of course, it will be interesting to see whether Restoration Hardware Holdings stays at that level as investors should always be cautious about "hot" IPOs but a closer look at Williams-Sonoma, Ethan Allen Interiors and to a lesser degree Natuzzi, S.p.A does give investors plenty to be optimisitic about.

Starting with Williams-Sonoma (NYSE: WSM), its a multi-channel retailer of seven distinct home-centered merchandise strategies: Williams-Sonoma (e-commerce, catalog and stores), Pottery Barn (e-commerce, catalog and stores), Pottery Barn Kids (e-commerce, catalog and stores), PBTeen (e-commerce and catalog), Williams-Sonoma Home (e-commerce), West Elm (e-commerce, catalog and stores) and Rejuvenation (e-commerce, catalog and stores). Williams-Sonoma will next report earnings on November 15th and its worth noting that the last time the company reported earnings, the stock hit a 52 week high after it reported that revenues rose from $864.2 million to $874.3 million while net income rose 10% thanks to double-digit sales growth at Pottery Barn and West Elm stores. In addition, Williams-Sonoma gave an upbeat guidance for the full year that triggered hopes that a prolonged turnaround is at hand. Williams-Sonoma fell 2.22% to $46.70 (WSM has a 52 week trading range of $32.67 to $48.07 a share) for a market cap of $4.60 billion plus the stock is up 21.3% since the start of the year and up 58.8% over the past five years.

Meanwhile, Ethan Allen Interiors (NYSE: ETH) is another interior design company and manufacturer and retailer of quality home furnishings whose products are sold exclusively through an international network of approximately 300 design centers. Ethan Allen Interiors surged a few weeks ago after reporting earnings well above most people’s expectations – including a 49% rise in fiscal first-quarter 2013 net income. Moreover, Ethan Allen Interiors has long-term growth opportunities thanks to an array of growth initiatives that include expanded product offerings, cost control efforts and higher spending on marketing. On Friday, Ethan Allen Interiors fell 1.43% to $29.57 (ETH has a 52 week trading range of $17.08 to $30.29 a share) for a market cap of $852.74 million plus the stock is up 24.7% since the start of the year and down 2% over the past five years.

Finally and as the largest Italian furniture company and the only foreign one with a listing on the NYSE, Italy based Natuzzi, S.p.A (NYSE: NTZ) is worth mentioning as it designs, produces and markets sofas, armchairs and living room accessories – including leather upholstered furniture. Natuzzi, S.p.A’s furniture is sold through approximately 293 Natuzzi Stores in important international cities like Athens, London, Paris, Madrid, New York, Sidney, Shanghai, Budapest, Melbourne and Dubai plus 382 Natuzzi Galleries, 20 Italsofa Stores and 158 Italsofa Gallery locations. The last time Natuzzi, S.p.A reported earnings, it reported a sales decline from €121.4 million to €120.3 million along with a net loss of €0.4 million. More tellingly, upholstery net sales for the Americas rose from 34.4% to 44.2% year-over-year while dropping from 40.1% to 34.0% for Europe (ex-Italy) and from 11% to 7.8% for Italy. Hence, Natuzzi, S.p.A is really banking on the Americas for its future and no doubt the upcoming November 19th earnings report will show similar trends. On Friday, Natuzzi, S.p.A rose 0.50% to $2 (NTZ has a 52 week trading range of $1.92 to $3.82 a share) for a market cap of $109.71 million down 11.1% since the start of the year and down 68% over the past five years.

The Bottom Line. Obviously Italy based Natuzzi, S.p.A (NTZ) has more exposure to global economic uncertainties while the recent performance of Williams-Sonoma (WSM) and Ethan Allen Interiors (ETH) does seem to bode well for investors in small cap Restoration Hardware Holdings (RH) - who nevertheless should also be cautious about buying into an IPO.