With a notable daily gain of 7.22% and a three-month gain of 14.25%, Ross Stores Inc (ROST, Financial) has caught the attention of investors seeking value. The company, boasting an Earnings Per Share (EPS) of 4.72, presents an intriguing case for valuation analysis. Is Ross Stores fairly valued at its current stock price? This article delves into the valuation analysis to provide investors with a clearer picture.
Company Introduction
Ross Stores Inc (ROST, Financial), a leader in the American off-price apparel and home fashion retail sector, operates over 2,000 stores under the Ross Dress for Less and dd's Discounts banners. Known for offering name-brand products at prices 20%-70% lower than conventional retailers, Ross Stores capitalizes on its opportunistic merchandising and a no-frills shopping environment. The company's sales in fiscal 2022 were heavily influenced by home accents and ladies' departments, with all sales occurring within the United States. With a current stock price of $128.82 and a Fair Value (GF Value) of $125.83, the question arises: does the current market price reflect the company's true value?
Summarize GF Value
The GF Value, a proprietary metric, estimates the intrinsic value of Ross Stores by considering historical trading multiples, an adjustment factor based on past returns and growth, and future business performance projections. When a stock's price significantly diverges from the GF Value Line, it indicates potential overvaluation or undervaluation, influencing future returns. With a market cap of $43.60 billion, Ross Stores (ROST, Financial) is considered fairly valued. This suggests that the long-term return of its stock is likely to align with the company's business growth rate.
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Financial Strength
Investors must consider a company's financial strength to avoid potential capital loss. Ross Stores showcases a fair balance sheet with a cash-to-debt ratio of 0.79, ranking higher than 59.19% of its industry peers. With a financial strength score of 7 out of 10, Ross Stores demonstrates a sound financial position.
Profitability and Growth
A company's profitability is a critical indicator of its risk profile and performance potential. Ross Stores has consistently maintained profitability over the past decade, with an impressive operating margin that surpasses a majority of its industry competitors. Furthermore, the company's revenue growth rate of 6.8% and 3-year average EBITDA growth of 0.7% reflect its capacity to create shareholder value through growth.
ROIC vs WACC
Assessing a company's value creation can also be done by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). With an ROIC of 21.55 and a WACC of 10.09, Ross Stores is effectively generating cash flow in excess of its capital costs, indicating positive shareholder value generation.
Conclusion
In summary, Ross Stores (ROST, Financial) is perceived to be fairly valued, balancing a fair financial condition with strong profitability. Despite its growth ranking below some industry peers, the company's financials and value-creating capabilities offer a compelling case for potential investors. To gain a deeper understanding of Ross Stores' financial journey, one can explore 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.
