Is Ross Stores Inc (ROST) Fairly Valued?
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On August 18, 2023, Ross Stores Inc (NASDAQ:ROST) recorded a daily gain of 5.93%, pushing its 3-month gain to 13.97%. The company's Earnings Per Share (EPS) stand at 4.51. But does this financial performance align with the stock's intrinsic value? Is the stock fairly valued? This article presents an in-depth valuation analysis to answer these questions.
Company Overview
Ross Stores Inc (NASDAQ:ROST) is a leading American off-price apparel and home fashion retailer. As of the end of fiscal 2022, the company operates over 2,000 stores under the Ross Dress for Less and dd's Discounts banners. Ross Stores targets to undercut conventional retailers' regular prices by 20%-70% by offering a variety of name-brand products. The company's unique, flexible merchandising approach, coupled with a low-frills shopping environment, enhances inventory turnover and traffic, enabling its low-price strategy. The company's sales in fiscal 2022 were majorly driven by home accents (26%), ladies' department (24%), menswear (15%), accessories (14%), shoes (12%), and children's (9%). All sales were made in the United States.
Understanding the GF Value
The GF Value is a proprietary measure that reflects the stock's current intrinsic value. This value is derived from historical multiples, GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on the company's summary page gives an overview of the fair value at which the stock should ideally be traded. 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.
At its current price of $119.77 per share, Ross Stores has a market cap of $40.80 billion. The stock appears to be fairly valued based on the GuruFocus Value calculation. Therefore, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss. The cash-to-debt ratio and interest coverage provide a good understanding of a company's financial strength. Ross Stores has a cash-to-debt ratio of 0.77, better than 58.75% of companies in the Retail - Cyclical industry. The company's overall financial strength is 7 out of 10, indicating fair financial health.