Today, we’ll take a look at the well-established Ross Stores, Inc. (NASDAQ:ROST). The company’s shares have seen decent share price growth at the teen level on the NASDAQGS over the past few months. As a large-cap stock with high analyst coverage, you can assume that any recent changes in the company’s outlook are already priced into the stock. But what if there is still an opportunity to buy? Today, I will analyze the most recent Ross Stores outlook and valuation data to see if the opportunity still exists.
What is the opportunity in Ross stores?
According to my multiple price model, where I compare the company’s price-earnings ratio to the industry average, the stock currently looks expensive. I used the price/earnings ratio in this case because there is not enough visibility to predict its cash flow. The stock ratio of 18.46x is currently well above the industry average of 6.22x, meaning it is trading at a higher price compared to its peers. On top of that, it looks like the stock price of Ross Stores is quite stable, which could mean two things: one, it may take a while for the stock price to come back to a range of attractive buy, and second, there may be less chance of buying low in the future once it reaches that value. This is because the stock is less volatile than the broader market given its low beta.
Can we expect growth from Ross Stores?
Future prospects are an important aspect when considering buying a stock, especially if you are an investor looking to grow your portfolio. Although value investors argue that it is intrinsic value relative to price that matters most, a more compelling investment thesis would be high growth potential at a cheap price. With profits expected to increase by 24% over the next two years, the future looks bright for Ross Stores. It seems that a higher cash flow is expected for the stock, which should translate into a higher valuation of the stock.
What does this mean to you :
Are you a shareholder? ROST’s upbeat future growth appears to have been factored into the current share price, with the stock trading above industry price multiples. At this current price, shareholders may ask a different question: should I sell? If you think ROST should be trading below its current price, selling at a high price and buying it back when its price drops towards the industry PE ratio can be profitable. But before making this decision, see if its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on ROST for a while, now might not be the best time to get into the stock. The price has outpaced its industry peers, which means there are likely to be no more benefits from poor pricing. However, the optimistic outlook is encouraging for ROST, which means that it is worth digging into other factors in order to take advantage of the next price drop.
In light of this, if you want to do more analysis on the company, it is essential to be aware of the risks involved. To help you, we found 2 warning signs (1 is concerning!) that you should be aware of before buying shares in Ross stores.
If you are no longer interested in Ross Stores, you can use our free platform to view our list of over 50 other stocks with high growth potential.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.