With a day's gain of 2.94% and a 3-month gain of 3.84%, Ross Stores Inc (ROST, Financial) has drawn considerable attention from the investment community. The company's Earnings Per Share (EPS) stands at 4.72, raising questions about whether the stock is fairly valued. This article provides a comprehensive analysis of Ross Stores' valuation to answer this question.
Introduction to Ross Stores Inc (ROST, Financial)
Ross Stores Inc is a leading American off-price apparel and home fashion retailer, operating over 2,000 stores under the Ross Dress for Less and dd's Discounts banners. The company's business model targets undercutting conventional retailers' regular prices by 20%-70% through an opportunistic, flexible merchandising approach. The current stock price is $115.33, and the GF Value, an estimation of fair value, is $124.5. This comparison sets the stage for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Ross Stores (ROST, Financial) appears to be fairly valued based on the GF Value calculation. With a market cap of $39.10 billion at its current price of $115.33 per share, the long-term return of Ross Stores' stock is likely to be close to the rate of its business growth.
Evaluating Ross Stores' Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Therefore, it's crucial to thoroughly review a company's financial strength before deciding to buy its stock. Ross Stores has a cash-to-debt ratio of 0.79, which is better than 59.75% of companies in the Retail - Cyclical industry. This ranking indicates that Ross Stores' financial strength is fair.
Profitability and Growth of Ross Stores
Investing in profitable companies, especially those with consistent long-term profitability, poses less risk. Ross Stores has been profitable for 10 of the past 10 years, demonstrating strong profitability. However, the company's growth ranks worse than 66.37% of companies in the Retail - Cyclical industry, with a 3-year average annual revenue growth rate of 6.8% and a 3-year average EBITDA growth rate of 0.7%.
ROIC vs WACC Comparison
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can provide valuable insights into its profitability. If the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, Ross Stores' ROIC was 21.55, while its WACC was 10.16.
Conclusion
In summary, Ross Stores (ROST, Financial) appears to be fairly valued. The company's financial condition is fair, its profitability is strong, but its growth lags behind 66.37% of companies in the Retail - Cyclical industry. For more information about Ross Stores' stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
