ROST Ross Stores
Great off-price compounder, but at 28x earnings the price already assumes flawless growth and peak margins.
The story
Ross is a scaled off-price retailer (Ross Dress for Less, dd's DISCOUNTS) that buys excess branded inventory opportunistically and sells it at 20-60% below department-store prices. Its moats are buying scale, vendor relationships, a low-cost treasure-hunt format that resists e-commerce, and a balance sheet with net cash. It is a mature but still-growing franchise: management targets roughly 2,900 Ross and 700 dd's stores, which leaves several hundred more units of domestic runway. Trade-down demand supports it in weak economies.
Revenue growth of about 6-7% comes from new stores plus low-single-digit comps, which matches the 6.8% 5-year CAGR. The margin settles at 13.5%, below the 14.4% TTM figure, because tariffs, freight and wages push costs up and pre-COVID peaks near 15% are unlikely to return. Sales-to-capital stays near the historical 3.2x. A 10-year horizon fits a durable moat with a real store-expansion runway, but it is not a 15-year franchise.
Value drivers
| Revenue growth (Y1) | 6.5% |
| Terminal growth | 3.0% |
| Forecast horizon | 10y |
| Target operating margin | 13.5% |
| Years to target margin | 3 |
| Sales-to-capital | 3.20 |
| Beta | 0.95 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 9.4% |
| Terminal WACC | 9.6% |
Valuation bridge
| PV of explicit FCFF | 17.71B |
| PV of terminal value | 20.45B |
| Equity value | 40.83B |
| ÷ shares → per share | $127.81 |
News
neutral +0.10 · 8 articles
- 1 Safe-and-Steady Stock to Own for Decades and 2 We Brush Off
- Here’s Why The Fund Trimmed Ross Stores (ROST) in Q2
- Buy 3 Big Discount Retailers to Gain From Solid Near-Term Price Upside
- DG vs. ROST: Which Stock Is the Better Value Option?
- The TJX Companies Stock Trading at a Discount: Buy or Hold?
- Ross Stores (ROST), What Is Behind The Fresh Attention Now?
- Ross Stores and Target Are Winning Shoppers From Rivals
- ROST Sees Strong Closeout Supply: Is Off-Price Set to Benefit?
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 26.11B | 6.5% | 14.1% | 2.78B | 497.90M | 2.28B | 2.09B |
| 2 | 27.70B | 6.1% | 13.8% | 2.89B | 498.53M | 2.39B | 2.00B |
| 3 | 29.29B | 5.7% | 13.5% | 2.98B | 495.34M | 2.49B | 1.90B |
| 4 | 30.85B | 5.3% | 13.5% | 3.14B | 488.09M | 2.65B | 1.86B |
| 5 | 32.37B | 4.9% | 13.5% | 3.30B | 476.63M | 2.82B | 1.80B |
| 6 | 33.85B | 4.6% | 13.5% | 3.45B | 460.86M | 2.99B | 1.75B |
| 7 | 35.26B | 4.2% | 13.5% | 3.59B | 440.72M | 3.15B | 1.68B |
| 8 | 36.59B | 3.8% | 13.5% | 3.73B | 416.24M | 3.31B | 1.62B |
| 9 | 37.83B | 3.4% | 13.5% | 3.85B | 387.49M | 3.47B | 1.55B |
| 10 | 38.96B | 3.0% | 13.5% | 3.97B | 354.65M | 3.62B | 1.48B |
Key risks
- Tariff and freight cost inflation compressing merchandise margins
- Middle-income consumer weakness hurting comps despite the trade-down benefit
- Store saturation or cannibalization as the chain approaches its unit targets
Catalysts
- Department-store closures and excess branded inventory widening the buying opportunity
- New CEO execution on dd's expansion and a return of margins toward 14%+