Ross Stores Inc Valuation – June 2016 $ROST

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Ross Stores Inc (ROST) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Ross Stores, Inc. is an off-price retailer of name brand and designer apparel, accessories, footwear, and home fashions for the entire family. The Company and its subsidiaries operate two brands of off-price retail apparel and home fashion stores: Ross Dress for Less (Ross) and dd’s DISCOUNTS. Ross is an off-price apparel and home fashion chain in the United States, with approximately 1,274 locations in over 34 states, the District of Columbia and Guam. Ross’ target customers are primarily from middle income households. The Company operates approximately 172 dd’s DISCOUNTS stores in over 15 states. Both Ross and dd’s DISCOUNTS brands target value-conscious women and men between the ages of 18 and 54. The Company owns and operates approximately six distribution processing facilities, including three in California, one in Pennsylvania, and two in South Carolina.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of ROST – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $21,892,914,341 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.50 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 275.55% Pass
6. Moderate PEmg Ratio PEmg < 20 23.37 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.61 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.50 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.45 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ROST value chart June 2016

EPSmg $2.35
MG Growth Estimate 10.92%
MG Value $71.19
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $34.03
MG Value based on 0% Growth $19.95
Market Implied Growth Rate 7.44%
Current Price $54.85
% of Intrinsic Value 77.05%

Ross Stores, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.36 in 2013 to an estimated $2.35 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 7.44% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Ross Stores, Inc. performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

ROST charts June 2016

Net Current Asset Value (NCAV) $0.14
Graham Number $19.15
PEmg 23.37
Current Ratio 1.50
PB Ratio 8.61
Current Dividend $0.49
Dividend Yield 0.89%
Number of Consecutive Years of Dividend Growth 20


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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $2,629,123,000
Total Current Liabilities $1,750,896,000
Long-Term Debt $396,142,000
Total Assets $5,114,177,000
Intangible Assets $0
Total Liabilities $2,574,736,000
Shares Outstanding (Diluted Average) 398,812,000

Earnings Per Share History

Next Fiscal Year Estimate $2.58
Jan2016 $2.51
Jan2015 $2.21
Jan2014 $1.94
Jan2013 $1.77
Jan2012 $1.43
Jan2011 $1.16
Jan2010 $0.89
Jan2009 $0.58
Jan2008 $0.48
Jan2007 $0.43
Jan2006 $0.34
Jan2005 $0.28
Jan2004 $0.37
Jan2003 $0.32
Jan2002 $0.24
Jan2001 $0.23
Jan2000 $0.21
Jan1999 $0.18
Jan1998 $0.15
Jan1997 $0.10

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.35
Jan2016 $2.14
Jan2015 $1.87
Jan2014 $1.62
Jan2013 $1.36
Jan2012 $1.07
Jan2011 $0.83
Jan2010 $0.62
Jan2009 $0.47
Jan2008 $0.40
Jan2007 $0.36
Jan2006 $0.32
Jan2005 $0.30
Jan2004 $0.30
Jan2003 $0.25
Jan2002 $0.21
Jan2001 $0.19

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – February 2016
13 Best Stocks For Value Investors This Week – 12/12/15
Ross Stores Inc Valuation – December 2015 Update $ROST
Dividend Growth Stocks for the Intelligent Investor – November 2015
Dividend Growth Stocks for the Intelligent Investor – October 2015

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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