The furniture stocks have taken quite a beating over the past few years, thanks in part to the wave of inflation and higher interest rates. Undoubtedly, higher rates and inflation have acted as a sort of one-two hit straight to the gut of folks with considerable amounts of debt. Indeed, consumer debt and mortgage debt aren’t ideal to have during times when the Bank of Canada is ready to hike in response to the horrendous surge in inflation we’ve been battling through in recent years.
Though Canada’s inflation rate recently fell just shy of the 3% mark, the green light to cut rates back toward levels we’re more accustomed to is not flashing quite yet. Indeed, inflation could be down in one month, just to come roaring back in the next. Either way, it seems like some of the more big-ticket discretionary plays are already beaten down, with little hope that the consumer will be ready to splurge wildly.
Over the long run, I view the recent plunge in various furnishing plays as more of an opportunity. Indeed, the recent headwinds that consumers have been hit with are not going to last forever. And as more young people (like millennials) aim to get into the housing market for the first time, they’re naturally going to need to get the place furnished!
It’s a secular tailwind that may be paused when the economy experiences moments of stagnation (or even recession). Regardless, if you’re looking to invest over the long haul (think the next five years at minimum), it’s hard not to be drawn in by the depressed valuations in the furnishing scene these days.
Without further ado, let’s check in with two intriguing (and dirt-cheap) furniture stocks that may be worth having a closer look at!
Leon’s Furniture
Leon’s Furniture (TSX: LNF) stock goes for just north of $20 per share after a nice relief rally experienced since bottoming out back in November 2023 in the mid-teens. At 10.5 times trailing price to earnings, shares of the top Canadian furniture retailer look deeply discounted.
With iconic banners like The Brick and, of course, Leon’s, LNF stock really is a great way to play a rise in millennial homeownership. Of course, we’re going through macro headwinds and inflation, which have weighed on one’s ability to purchase sectionals, sofas, and other nice-to-have goods. Once the economy gets up to full speed, though, look for Leon’s sales to surge at a rate well above the average (perhaps well north of 10%).
Additionally, look for the firm to keep managing costs effectively as they seek ways to create value for longer-term shareholders. The latest quarter was pretty decent despite gross profit margin pressures. In any case, LNF stands out as a play only suitable for investors looking to play the long game.
RH
Leon’s is more of a high-value (good quality at competitive prices) play on furnishings. For those seeking exposure to the affluent consumer, RH (NYSE: RH) stock is worth checking out as it looks to turn its own tides.
At $259 and change, the stock is still down over 64% from its all-time high back in 2021. It’s crashed, but shares have shown signs of bottoming out. With a modest 27.45 times trailing price-to-earnings price tag and some of the most impressive furnishings on the scene, I believe RH stock could have the potential to really come roaring back once the economy takes off.
Indeed, RH stock’s bust could precede a considerable boom as the rich consumer looks to spend more money on home furnishings.
