- Warren Buffett buys a significant stake in furniture retailer RH.
- The stock is up big in after-hours trading and bulls are rejoicing.
- About 36% of RH shares are sold short and they are about to get toasted.
RH (NYSE:RH), formerly known as Restoration Hardware, is a company that has a history of battling short sellers.
In 2018, the furniture retailer was ranked as the tenth most shorted name on the New York Stock Exchange. At that point, 35% of the company’s outstanding shares were sold short. Early this year, Bloomberg reported that RH short sellers lost $67 million after the equity surged by 16%. A strong first quarter performance that exceeded Wall Street expectations ignited the rally.
On Friday, short sellers will likely dance to a familiar tune. Warren Buffett revealed on Thursday that Berkshire Hathaway bought 1.2 million shares of RH. The Financial Times reported that the investment totaled $206 million for a 6.5% stake in the furniture company.
With the legendary investor on-board, it is very likely that RH will skyrocket to a fresh all-time high – bad news to those who shorted the stock.
RH Up Big After Hours
The Warren Buffett impact is in full effect. As of press time, RH jumped by 7.93% in after-hours trading. It looks ready to explode throughout the day.
Short sellers must have felt a punch in the gut once they heard the news of Buffett’s entry. ShortSqueeze reveals that 5.8 million shares are currently sold short. That’s about 36% of RH’s 16.1 million float. Once the market opens, short sellers have little recourse but to cover.
Trader Hidden Pivots, one of the market participants who longed RH before the Buffett announcement, predicts that the stock will soon reach $200 per share.
Bulls Are Celebrating Warren Buffett’s Stake in RH
You know you’re in good hands if you have Warren Buffett on your side. That’s why RH bulls are out in force on Twitter to brag about the entry of the Oracle of Omaha. For instance, Christian Fromhertz, chief executive of Tribeca Trade Group, made fun of short-sellers with a hilarious meme.
Long-term investor Halle Tecco wishes she had bought more RH shares before news of Berkshire Hathaway’s purchase erupted.
Bears in Denial
Many people often cope with reality by denying its existence. This is what we’re seeing from bears who will probably face heavy losses in Friday trading. For example, a trader named Josh thought that people who bought RH on the dip were just lucky. He appears to be frustrated because he shorted the stock via puts.
There are some who believe that Warren Buffett is no longer the patient man he once was. According to a pseudonymous account that goes by the name of Stock-Trader, Buffett’s purchase is a sign of a top.
Then, there are others who believe that the Oracle of Omaha has lost his touch. For instance, user Joe W. thinks that the RH purchase of Berkshire Hathaway is a terrible investment.
Bears and short-sellers can say what they want about Warren Buffett, but the fact remains that his investment in RH is about to pay off. The stock is up big in pre-market and it looks eager to go higher.
Disclaimer: The above should not be considered trading advice from CCN. The writer does not own RH stock.
This article was edited by Sam Bourgi.
Last modified: November 15, 2019 14:46 UTC