At Home Group (NYSE: HOME) Rollercoaster Revenue But Looks Like a Good Bet

Some of the market’s biggest winners since the pandemic are companies that have directly benefited from all the time people have spent at home.

Wayfair NYSE: W, for example, is an e-commerce company that sells furniture and home goods. Wayfair shares have surged since the onset of the pandemic, as demand for furniture and home-goods has jumped with people stuck at home, and there has been an increased shift towards online shopping.

At Home Group NYSE: HOME doesn’t have a massive online presence. But the company, which operates home decor superstores in the US, has seen demand surge for its products over the past few months. It recently announced preliminary results for Q2 2021 (which ended July 25, 2020 for HOME), noting that comps increased 42% yoy. Shares surged more than 30% on the news.

That number was very far out of the ordinary for HOME. In Q2 2020, comps dipped 0.4%. Last quarter (Q1 2021), comps declined a staggering 46.5% after the company was forced to close all of its locations due to the pandemic. And even though At Home Group’s 2019 holiday season beat expectations, comps still saw a modest decrease for that period.

Is Q2 2021 an Anomaly or a Sign of Things to Come?

I’ll save you some of the suspense:

HOME is not going to continue to see 40%+ comps moving forward – Q2 2021 was a perfect storm for the company.

On the earnings call, CEO Lewis L. Bird III said, “During Q2, we believe we also benefited from short-term factors, including pent-up demand, stimulus checks and the fact that some of our competitors reopened later than we did.”

Add on the industry-wide boost caused by all the time people are spending at home, and it’s clear that Q2 2021 is an anomaly for HOME.

At Home Group recognizes the uncertain environment moving forward and declined to provide Q3 and Q4 guidance.

With all that said, there is reason for optimism in Q3 and beyond:

• The company continues to expand delivery capabilities and now offers the service in more than 70% of its stores – up from 50% of its stores just six weeks ago.
• With an average store size of 110,000 square feet, HOME is better positioned than most brick-and-mortar retailers when it comes to safely accommodate social distancing.
• Even though you won’t mistake HOME’s online operations for Amazon’s NASDAQ: AMZN, the company’s loyalty program, Insider Perks, grew to 7.5 million subscribers, up 45% yoy.

On that last point, online loyalty programs have been one of the best ways to engage with customers since the onset of the pandemic. Chipotle Mexican Grill NYSE: CMG is another example of a company whose stock has thrived over the past few months largely due to a growing online loyalty program.

A Reasonable Valuation With Growth Expected to Taper Off

At Home Group is trading at a little under 11x projected 2021 earnings and around 12x projected 2022 earnings. Its price-to-sales ratio is projected to be around .66 for both 2021 and 2022.

Expectations seem a bit too pessimistic moving forward. Again, 40%+ comp growth is a pipedream moving forward, but high-single digit to low-double digit growth is certainly possible for HOME. And with its P/E ratio being so reasonable, shares could still see a slight increase even if revenue and earnings go sideways.

The Chart is Very Extended

On top of its 30%+ gains on the announcement of preliminary results, HOME stock has tacked on an additional 20%+ in gains over the following six sessions.

Shares went from a little extended to very extended and the RSI is now well into overbought territory.

With shares roughly double the 50-day moving average and nearly triple the 200-day moving average, getting enough of a pullback seems unrealistic.

What you can do is look for a 2-4 week consolidation around current levels, culminating in a decisive breakout. Ideally, volume would dry up and the price action would be tight during the consolidation, giving shares a chance to digest their massive recent gains.

The Final Word

The key with HOME is to have realistic expectations. If you buy it expecting earnings to remain stable and view possible 8-12% future growth as gravy, you have a low chance of being disappointed. But expecting even half (21%) of Q2 2021 growth rates is a recipe for disaster.

Armed with realistic expectations, keep an eye on HOME and look to get in if the chart gives you the go-ahead.