Stock (Symbol)

Ross Stores (ROST)

Stock Price

$54

Sector

Retail & Travel

Data is as of

July 11, 2017

Expected to Report

Aug 17

Company Description

Ross Stores operates two brands of off-price retail apparel and home fashion stores, Ross Dress for Less (Ross) and dd’s DISCOUNTS. The Ross and dd’s DISCOUNTS stores are supported by five distribution centers. The Ross brand stores offers its products at savings of 20% to 60% off department and specialty store regular prices every day. The dd’s DISCOUNTS stores offers its products at savings of 20% to 70% off moderate department and discount store regular prices every day. Source: Thomson Financial

Sharek’s Take

Ross Stores (ROST) stock has fallen off a cliff — even though results are coming in solid. Lasst qtr ROST had 12% profit growth. That’s good. Same store sales increased a modest 3% so people are still coming out to the stores. In my opinion, this stock should be bought at these levels. Rost Stores is a discount clothing store that sells clothing and home goods at 20-60% off department store prices. The company began in 1982 in the San Francisco Bay area when 6 junior department stores were acquired and converted into Ross Dress for Less off-price stores. Ross went public in 1985 and as of fiscal year ending 2016 had 1342 Ross stores and 193 dd’s DISCOUNTS locations. Launched in 2004, dd’s DISCOUNTS targets younger households with more moderate incomes than Ross. ROST adds around 20 dd’s locations a year in addition to 70 Ross stores, and management feels it can almost double its total store count to 2500 someday. Significant growth opportunities lie ahead for both concepts as Ross is only in 34 states, with dd’s in just 15 states. Yes the malls are in rough shape, but people still have to try on clothes to buy them, thus I feel Ross will actually benefit from mall store closures. ROST is an extremely well run organization. This company has little debt, thus management spends hundreds of millions on stock buybacks and dividends each year. ROST has an Est. LTG of 10% a year in addition to a 1% yield. The stock sells for 17x earnings and I think it should sell for 20x. My 2017 Fair Value is $63 a share with 2018’s being $69. That’s good upside potential for this safe stock that’s grown profits every year the past decade.

One Year Chart

I feel the ETFs caused this decline in the stock. ETFs and S&P 500 Index funds are controlling a lot of Wall Street right now. We just have to meneuver. How? My looking for deals — like this. Ross delivered an impressive 12% gain in profits last qtr, 7% sales growth and 3% same store sales growth. Annual profit estimates stayed consistent with last qtr. Qtrly Estimates are 8%, 8%, 17% and 10%. ROST typically lowers estimates leading up to a qtr then beats the street in the end. This P/E of 17 makes this a good time to buy.

Fair Value

Ross has sold for around 20x earnings the past few years. Now the P/E is 17, but I feel it still should be 20. That gives the stock solid upside for both this year and next.

Bottom Line

Ross Stores is a well oiled machine that grows its store base, increases same store sales at a modest rate, pays a dividend and buys back stock. That’s a recipe for success. I feel this stock could continue to product double-digit total returns for the long-term and investors who buy here are getting a good value. ROST ranks 12th of 31 stocks the Conservative Growth Portfolio Power Rankings.