Past performance isn’t a guarantee of future returns in the stock market, but it is a good indicator. Winners tend to keep on winning in the stock market, after all, and outperformance isn’t usually an accident. It comes from having a set of competitive advantages that give a company pricing power and allow for strong growth, as well as a skilled management team and a product that customers want.

In the retail sector, two stocks with long histories of outperformance are Tractor Supply (TSCO 0.99%) and RH (RH 2.29%), the high-end home furnishings purveyor formerly known as Restoration Hardware. Here’s why these two stocks could double in price once again.

1. Tractor Supply: Dominating a unique retail niche

Tractor Supply may not be a household name on Wall Street because its 2,000 or so stores cater to a rural lifestyle. The chain sells everything from chicken feed to ATVs to fencing. It also operates the pet store chain PetSense. While the company competes in some ways against larger retailers like Home Depot and Walmart, it faces little direct competition in its specific niche, and its scale gives it an advantage over independent stores.

Over the last decade, Tractor Supply’s stock price is up by about 400%, and it has the momentum to double again.

Tractor Supply is one of the rare retailers that thrived during the pandemic and managed to hold on to those gains. Comparable sales rose 5.7% in the third quarter. Earnings per share also increased by 8%, and management raised its guidance.

Tractor Supply has a number of levers it can pull to grow its business in addition to adding new stores, increasing comparable sales, and building its e-commerce business. The company is adding garden centers to its stores — it opened 260 of them so far — and it’s remodeling stores under a program called Project Fusion, which is updating fixtures, layouts, and products to make the locations more customer-friendly. The company has now remodeled 25% of its stores and aims to remodel 60% to 70% of them.

Acquisitions also offer a growth opportunity. The company just acquired Orscheln Farm and Home, bringing 81 stores into its fold that will be rebranded as Tractor Supply.

Though the business may seem mature, there are plenty of opportunities for Tractor Supply to grow its business and push the stock higher.

2. RH: Accessible luxury

Like Tractor Supply, RH has been a top performer in the retail sector over its history, carving out a niche in high-end home furnishings.

Over the last decade — essentially since its 2012 IPO — the stock is up by nearly 700%, and that includes a sharp pullback this year as home goods stocks, in general, fell as consumer spending shifted away from the sector after it boomed during the pandemic.

However, RH’s business model is proving its worth. The company generates operating margins in the 25% range, showing it is a true luxury brand, and CEO Gary Friedman established himself as a visionary in the industry. A few years ago, the stock plunged after he pivoted the company to a membership-based business model, but the move paid off in increased customer loyalty and gave RH an additional reliable revenue stream.

Now, Friedman is focused on extending the brand beyond retail. RH is running a pilot program opening hotels and restaurants and is leasing out planes and yachts — taking its loyal customer base and selling them experiences rather than just furniture. To further build out the brand, RH also plans to launch a streaming video service with shows focused on architecture and design.

Sales growth was sluggish this year, but that’s to be expected after 2021’s sales surge. And of course, macroeconomic headwinds are intensifying — a trend that Friedman was one of the first CEOs to point out.

The company should return to steady growth once the economy improves, and investors would be smart to take advantage of the currently discounted valuation of the stock, as it trades at a price-to-earnings ratio of roughly 10. At that price, the stock could easily double or better, once it reminds the market of its growth potential.

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