Chasing Value: Ross Stores Update, Great Then and Now

Posted Sep 7th 2010 10:00AM by Sheldon Liber
Filed under: Consumer Experience, Wal-Mart (WMT), Target Corp. (TGT), Bargain Stocks, Chasing Value™

Last January I suggested that shares of Ross Stores (ROST) might be as much of a bargain as the merchandise it sells. That turned out to be true. The stock has outpaced the market considerably. At the time, it was trading at $45.20. Last week, on Sept. 3, Ross closed at $52.60 for a year-to-date gain of 16.37%.

Ross pays a small dividend yielding 1.12%. It is not high, but it exceeds what you're getting from money market accounts or CDs and, added to the stocks appreciating, it's a bonus.

After this nice gain, how do the metrics shape up today? Is it too late to make some money here?

From what I see, you can still invest safely and profitably. The P/E ratio of 12.43 is below the market average and below that of Wal-Mart (WMT) at 13.34, Target (TGT) at 14.51, and even TJX Co's (TJX) at 12.73, one of it's closest competitors.

Other things that stand out to me include a very low PEG ratio of 0.87, and a P/S ratio of 0.74. in both cases, anything below 1.0 is cheap and far below the market. The ROE is huge for a company with modest debt. It stands at 41.53%, followed by a ROIC of 36.59% and a ROA of 19.33. In all honesty, I have to say that these numbers are so good that I would wonder if they are sustainable.

On the other hand, the dividend payout ratio at 13.95 is low and sustainable. Given the ROE and low debt it would seem there is room to raise the yield in the coming years.

The numbers are great, but leaving them aside, how does the story play out on Main Street? I would have to say it looks very good here too. Ross operates 1,000 stores and has not even begun to penetrate almost half the states in the Union.

This might be as good a time as any to consider adding Ross to your portfolio. Even though it's up for the year, it's down for the quarter, but it just reported a 5% increase in month-over-month sales.

Add to all this that unemployment remains high, the savings rate is increasing, and the economy is weak -- and you have the perfect setting for continued growth in the stock.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value™ and Serious Money. Disclosure: He does not own any shares of the stocks mentioned in this story.