Ross Stores, Inc. (ROST) Stock Analysis

Ross Stores (ROST) – Deep Dive Analysis

Company Overview and Strategy

Business Model: Ross Stores, Inc. is the largest off-price apparel and home fashion retailer in the U.S., operating Ross Dress for Less (1,764 stores) and dd’s DISCOUNTS (345 stores) as of early 2024 (www.sec.gov) (www.sec.gov). Unlike traditional department stores, Ross’s off-price model focuses on buying brand-name and designer merchandise at steep discounts and passing those savings to customers. Both chains offer first-quality, in-season apparel, footwear, home décor, and accessories for the entire family, typically 20%–60% below regular retail prices (www.sec.gov) (www.sec.gov). Ross targets middle-income, value-focused customers, while dd’s DISCOUNTS caters to a more moderate-income segment with even deeper everyday discounts (www.sec.gov) (www.sec.gov).

Strategic Objectives: Ross’s mission is to deliver bargain prices on recognizable brands in convenient, no-frills store environments (www.sec.gov) (www.sec.gov). Key pillars of its strategy include:

• Broad Assortment & “Treasure Hunt” Experience: Ross offers a wide variety of brands and product categories, with new merchandise arriving 3–6 times per week (www.sec.gov). This constant refresh fuels a “treasure hunt” shopping experience where customers return frequently to find new deals. Merchandising decisions are highly flexible – buyers review assortments weekly and can quickly adjust to consumer trends and buying opportunities (www.sec.gov). CEO Barbara Rentler highlights that off-price retail isn’t “pigeonholed” – it can “flex and move with what the customer wants”, unlike retailers locked into preset seasonal lines (www.retaildive.com) (www.retaildive.com).

• Lean Operations and Low Prices: Stores are kept simple and self-service oriented, enabling lower operating costs. Ross maintains “an appropriate level of recognizable brands…at strong discounts” across all departments (www.sec.gov) (www.sec.gov). By buying opportunistically and often late in the fashion cycle, Ross secures inventory at low cost. It uses a “packaway” inventory strategy, buying excess merchandise and storing it for later sale – about 40% of inventory at year-end 2023 was packaway stock (www.sec.gov). This helps smooth supply fluctuations and seize bulk deals.

• Vendor Relationships: Ross’s experienced buying team of over 900 merchants builds strong relationships with manufacturers and brands (www.sec.gov) (www.sec.gov). These relationships, along with nimble purchasing methods, are cited as a “key factor” in Ross’s success (www.sec.gov). The company’s scale and reputation allow it to purchase merchandise at net prices below those paid by traditional department stores, giving Ross a structural cost advantage (www.sec.gov). Importantly, Ross focuses on selling well-known national brands rather than developing extensive private labels. (Academic research suggests that while private labels can boost margins, they often reduce product differentiation in a category (www.tse-fr.eu). Ross instead differentiates by offering a constantly changing mix of many national brands, preserving variety and brand appeal for consumers.)

• Real Estate Growth: The company pursues disciplined store expansion in both new and existing markets. It targets locations in value-oriented shopping centers, considering local demographics, competition, and expected returns (www.sec.gov) (www.sec.gov). Ross favorably benefits from the ongoing shakeout in retail – management notes that the wave of brick-and-mortar store closures in recent years creates opportunities for Ross to sign attractive leases and gain market share (www.sec.gov). (Notably, leasing store locations has financial implications: leases create long-term payment obligations similar to debt. As finance scholar Aswath Damodaran observes, ignoring lease liabilities can skew a retailer’s leverage and profitability metrics (paperzz.com) (paperzz.com). Ross’s balance sheet now reflects ~$3.3 billion of lease liabilities from store leases (www.sec.gov) (www.sec.gov), underscoring the significant capital commitment behind its expansion strategy.)

Recent Performance and Adjustments: Ross’s off-price strategy has proven resilient. During fiscal 2023 (year ended Feb 2024), Ross generated $20.4 billion in sales, a 9% increase, driven by a +5% rise in comparable store sales and 94 net new stores (www.sec.gov). It expanded its store base to 2,109 locations, opening around 5% more stores for the second year in a row (www.sec.gov). Management’s execution on sourcing was evident in 2023 – despite inflationary pressures on consumers, Ross managed to improve merchandise margins by 160 basis points as freight costs normalized (www.sec.gov). The company raised its full-year guidance in late 2023 after strong results, reflecting confidence in its model (www.retaildive.com).

Looking ahead, Ross plans to continue refining its off-price playbook to sustain profitability while growing. The primary objective remains “to maintain and improve profitability and financial returns over the long term” through rigorous focus on bargains and efficiency (www.sec.gov) (www.sec.gov). Management acknowledges a challenging macro environment (inflation in staples squeezing low-income shoppers’ budgets), but sees Ross gaining market share as consumers seek value (www.sec.gov) (www.sec.gov). In their words, bringing more sought-after brands at “unbelievable values” and broadening the assortment will be key to winning more customers and share (www.onwish.ai) (www.onwish.ai).

Academic Insight: Ross’s strategy notably eschews heavy use of private labels, in contrast to many retailers. Academic research on private label positioning finds that introducing private brands often reduces product differentiation and can even lower consumer welfare by crowding out national brands (www.tse-fr.eu). Ross instead leverages recognized national brands as a draw, offering them at deep discounts to create a strong value proposition. This approach yields a competitive edge in assortment breadth and resonates with bargain hunters who “prefer well-known brands” but at lower prices (www.globenewswire.com). Ross’s reliance on leased stores also aligns with common retail practice, but one should note that lease obligations act as hidden debt. Converting operating leases to debt (per new accounting standards) can change how we view a retailer’s returns and risk (paperzz.com) (paperzz.com). In fact, research shows capitalizing leases generally lowers a retail firm’s reported return on capital and increases its debt ratio – providing a more realistic picture of its financial leverage (paperzz.com) (paperzz.com). We will consider these factors when evaluating Ross’s financial performance and valuation.

Industry and Market Opportunities

Off-Price Retail Industry: Ross operates in the off-price retail sector, which focuses on selling branded apparel and home goods at significant discounts. This sector has grown steadily over the past decade as consumers became more value-conscious. Globally, the off-price retail market is projected to surpass $500 billion by 2030 (www.globenewswire.com), fueled by strong demand for brand-name goods at lower prices. In the U.S., off-price retailers like Ross, T.J. Maxx (TJX Companies), Burlington, and Nordstrom Rack have taken market share from traditional department stores by offering a bargain-oriented “treasure hunt” experience. Shoppers enjoy the thrill of finding well-known labels at 20–70% off – a value proposition difficult for full-price stores to match.

Market Size & Share: Ross is a leading player in a concentrated group of major off-price chains. TJX is the largest global off-price retailer (with banners such as T.J. Maxx, Marshalls, and HomeGoods), and Ross is the second-largest in the U.S. by sales and store count (www.sec.gov) (www.sec.gov). The off-price segment has proven relatively resilient to economic cycles: in strong economies, consumers seek brand bargains to extend their budgets; in downturns, shoppers trade down from full-price retailers to off-price stores. Ross’s management noted that even with a tight macro environment, off-price retail is positioned to adapt quickly to customer needs and capture those trading-down shoppers (www.retaildive.com) (www.retaildive.com). This counter-cyclical appeal is a key market opportunity – as inflation and economic uncertainty persist, more consumers (including middle-income families) gravitate towards value retailers like Ross.

Growth Drivers: Several industry drivers support Ross’s future growth:

• Bricks-and-Mortar Shift: The ongoing shakeout of traditional retail has led to many store closures and bankruptcies among department stores and specialty apparel chains. This has reduced competition and left vacancies that off-price retailers can fill (www.sec.gov). Ross explicitly cites the “significant number of retail closures” as creating market share opportunities for its stores (www.sec.gov). Essentially, Ross can move into markets where a Macy’s or J.C. Penney closed, capturing local demand for apparel/home goods but at discount pricing.

• Consumer Behavior: The trend of value-seeking behavior is entrenched. Millennials and Gen Z consumers are also known to hunt for deals and enjoy the experiential aspect of off-price shopping. Moreover, branded goods carry aspirational appeal – shoppers who can’t afford designer items at full price can find them at Ross. As long as well-known brands remain a draw, off-price chains have an edge: a GlobeNewswire analysis notes “people prefer to buy branded items… the main reason is credibility of well-known brands,” and off-price stores enable that at a lower cost (www.globenewswire.com). Ross’s ability to consistently stock popular brands is thus a durable demand driver.

• Store Expansion: The U.S. market still offers room for expansion for Ross. As of 2023, Ross had stores in 43 states and D.C., meaning it has yet to penetrate some states or regions fully (www.sec.gov) (www.retaildive.com). For example, the company only recently opened its first stores in New York and Minnesota (www.retaildive.com). Management sees potential for at least 2,900 Ross stores and 700 dd’s DISCOUNTS in the long term (www.retaildive.com). This implies roughly a 70% increase from the current ~2,100 store count – a substantial runway for growth. New stores directly add revenue, and Ross has a track record of successfully scaling into new markets (albeit with careful site selection and local tailoring).

• Supply Availability: Interestingly, an oversupply in the apparel/retail supply chain can benefit off-price retailers. If brands overproduce or if consumer demand softens, excess inventory becomes available for off-price buyers like Ross at attractive prices. During 2023, Ross leveraged “compelling opportunities in the marketplace” to buy packaway inventory at discounts (www.sec.gov). In times of disrupted supply chains or gluts (e.g. post-pandemic inventory pileups), Ross can capitalize by purchasing merchandise others need to liquidate, then selling it at a margin. This opportunistic sourcing is a structural advantage in chaotic market conditions.

Risks and Challenges (Industry): Despite these opportunities, Ross faces industry-wide risks:

• Market Saturation & Competition: The off-price sector is competitive and nearing saturation in some areas. Ross’s main rival, TJX, operates over 3,000 stores globally and continues to expand. Burlington Stores (with ~900 stores) is also growing aggressively and shifting to more of a bargain model. Other players include Nordstrom Rack and smaller regional off-price chains. The retail apparel market is fragmented and highly competitive on price, assortment, and convenience (www.sec.gov) (www.sec.gov). Ross must continue to differentiate on value; any erosion of its price advantage or inventory pipeline could hurt sales. Additionally, as Ross pushes into new geographic regions (e.g. the Northeast), it encounters new competitors and unfamiliar customer bases, which can slow store ramp-up.

• Economic Pressures on Consumers: Ross’s core customers are budget-conscious households. Macroeconomic factors like high inflation in essentials, rising gas prices, or reduced stimulus can strain lower-income shoppers (www.sec.gov). In 2024, Ross noted that elevated food and housing costs were squeezing discretionary spending for its customers (www.sec.gov). A broader economic downturn or persistently high inflation could reduce consumer spending on apparel/home goods, even at off-price stores. (Indeed, Ross’s 2024 guidance initially assumed sluggish consumer spending, and the company projected below-consensus sales growth due to this trend (www.reuters.com).) The flip side is that in a downturn some higher-income customers “trade down” to off-price, which could offset weakness among Ross’s base – making this both a risk and an opportunity.

• Supply Constraints: While excess inventory benefits off-price, the opposite scenario – tight inventory or supply constraints – is a risk. If apparel manufacturers produce more conservatively or sell more directly to consumers, off-price chains might struggle to source enough quality merchandise. For example, if brands reduce excess stock or utilize their own outlet stores and online clearance, Ross’s buying opportunities might shrink. Ross’s model relies on a healthy pipeline of brand overruns, cancellations, and liquidations. Any structural decline in that pipeline (say, due to improved supply chain tech or a shift to on-demand manufacturing) could challenge the off-price model.

• E-Commerce and Evolving Consumer Habits: The lack of e-commerce presence is a notable weakness for Ross (za.investing.com). Unlike most retailers, Ross has no online sales channel – its treasure-hunt experience is exclusively in-store. This has worked so far (the in-person dig for bargains is hard to replicate online), but consumer shopping habits increasingly favor convenience and digital options. The risk is that a new generation of shoppers might expect an omnichannel experience or that online competitors find ways to encroach (for instance, Amazon or off-price online platforms offering similar discounts). While Ross cites the “less seasonality” and flexibility of its model as advantages (www.sec.gov) (www.sec.gov), the inability to reach customers online could cap its addressable market in the long run. If consumer preferences shift more toward e-commerce or if resale marketplaces attract bargain hunters, Ross could face headwinds without a digital strategy.

In summary, Ross’s market opportunity in off-price retail remains attractive – value retail is growing, and Ross has a sizable expansion runway. The company’s focus on brand bargains positions it well to keep winning customers in an environment where “value-conscious consumers” are on the rise (za.investing.com). However, execution is key: maintaining the flow of desirable inventory and expanding without diluting the treasure-hunt experience will determine how much of that opportunity Ross can capture.

Competitive Advantage (Moat) Analysis

Ross Stores benefits from several competitive advantages that form its economic moat in the retail landscape:

1. Off-Price Operating Model & Cost Structure: Ross’s entire business is engineered for low costs and efficiency, which is tough for traditional retailers to replicate. Its no-frills stores, lean staffing, and opportunistic buying allow Ross to offer prices well below those of department stores while still earning a profit. For example, Ross’s cost of goods sold runs about 73% of sales (www.sec.gov), translating to ~27% gross margins – sufficient when coupled with high inventory turnover. It avoids expensive fixtures, elaborate merchandising displays, or extensive customer service desks; the savings are passed on to shoppers. This model creates a price moat – few competitors can consistently undercut Ross on brand-name items and remain profitable. The importance of maintaining a price gap is highlighted in their strategy: “Maintaining an overall pricing differential to department and specialty stores is key to attracting customers and sustaining margins.” (www.sec.gov). Ross’s execution of this model gives it a durable advantage with bargain-focused consumers.

2. Scale and Purchasing Power: With over $20 billion in sales, Ross has substantial scale advantages, especially in procurement. It can place large orders and negotiate favorable terms with vendors. Ross’s merchant organization (separate teams for Ross and dd’s) is one of the largest buying networks in off-price retail (www.sec.gov) (www.sec.gov). The company leverages this scale to source merchandise from over 8,000 vendors worldwide (as per past reports) – ranging from major apparel brands to boutique manufacturers. Its scale also means better access to inventory: when a vendor has excess, Ross can buy in bulk on short notice, sometimes getting first pick over smaller discounters. The packaway inventory strategy magnifies this advantage – Ross can commit cash to buy large lots of merchandise in advance and store them. Smaller competitors might lack the capital or logistics to do the same. This creates a moat via inventory availability: in tight inventory situations, Ross can still fill its stores from packaway stock, whereas others might face empty shelves. As an example, packaway comprised ~40% of Ross’s inventory at the end of 2023 (www.sec.gov), reflecting the depth of its buying capacity.

Scale also helps Ross spread costs like distribution, IT systems, and corporate overhead across 2,000+ stores. Its distribution centers and packaway warehouses are built for off-price’s high volume, rapid turnover needs (www.sec.gov). This efficiency in the supply chain (from port to store) lowers per-unit costs and speeds up the flow of goods. In short, Ross’s large scale fortifies its cost leadership and ensures robust supply, which new entrants would struggle to match.

3. Vendor Relationships & Market Know-How: In the off-price world, relationships are key – and Ross’s buying team has decades of experience cultivating them (www.sec.gov) (www.sec.gov). Ross often buys from manufacturers, wholesalers, or other retailers seeking to liquidate inventory. The trust and reliability Ross has built (for cutting quick deals and honoring commitments) make vendors prefer Ross when they have goods to offload. This network is a competitive moat: it’s not simply about throwing money at suppliers, but knowing who to call and how to negotiate unique buys. Ross’s buyers, averaging 8 years experience, understand how to evaluate product quality vs. price and which goods will appeal to their customer segments (www.sec.gov). The company’s long history since 1982 has given it data and intuition on consumer preferences in off-price, which is hard for competitors to copy.

Furthermore, Ross’s approach of carrying recognized brands amplifies its competitive edge. Shoppers trust that they’ll find names they know, which increases store traffic. Some competitors rely more on private labels or lesser-known brands (which can yield higher margins but lack the drawing power). Ross’s strategy of stocking national brands at 20–60% off gives it a brand equity moat – effectively “borrowing” the prestige of Nike, Calvin Klein, or Kate Spade, but at Ross’s prices. As long as brands need a channel to clear excess merchandise without eroding their full-price channels, Ross offers that solution. This symbiotic relationship (brands get a discreet liquidation channel; Ross gets attractive product) is a moat reinforced by trust and past success.

4. Flexible Merchandising and Inventory Management: Ross’s ability to rapidly adapt its product mix is a competitive advantage, especially in fashion retail where trends change quickly. Because Ross isn’t tied to any single brand or seasonal collection, it can pivot to whatever is selling. For instance, if athleisure wear suddenly spikes in popularity, Ross can direct buyers to scoop up surplus athletic apparel from various brands, and allocate more floor space to it. This flexibility extends to handling macro changes: during 2020’s pandemic, Ross was able to adjust inventory plans (though stores were temporarily closed, once reopened they aggressively purchased needed categories). Management notes that the off-price model gives “greater flexibility than traditional retailers in adjusting merchandise mix to changing consumer tastes”, though they acknowledge they still must anticipate trends correctly (www.sec.gov). This adaptability helps Ross avoid the severe markdown cycles that plague full-line retailers stuck with unpopular inventory. By turning inventory ~12 times a year and keeping stores constantly refreshed, Ross maintains a moat in inventory turnover efficiency. It can also be nimbler in markdowns – if something isn’t selling, they’ll mark it down and move on, keeping the treasure hunt appealing.

Ross’s inventory management prowess was evident in 2023’s results: despite external pressures, inventory turnover remained healthy, and markdowns were well-controlled, aided by lower supply chain costs (www.sec.gov) (www.sec.gov). The company achieved a higher merchandise margin partly by leveraging its bargaining power on freight and packaway timing. In essence, operational excellence in inventory management supports Ross’s moat by protecting margins and ensuring stores have the right mix of product at the right time. Competitors with slower supply chains or rigid buying cycles struggle to replicate this.

5. Financial Discipline and Shareholder Returns: While not a classic “moat” in Porter’s sense, Ross’s strong financial condition reinforces its competitive position. The company has healthy cash flows and a conservative balance sheet, allowing it to invest in growth and weather downturns better than weaker rivals. For instance, Ross has been consistently profitable with robust free cash flow (over $1 billion annually in recent years – see Financial Analysis section), enabling it to self-fund store expansions and distribution center builds. It carries about $2.46 billion of long-term debt (as of early 2024) which is very manageable relative to equity and cash flows (www.sec.gov). Even including $3.3 billion in lease liabilities, Ross’s leverage is moderate for a retailer of its size (www.sec.gov) (www.sec.gov). This financial strength means Ross can continue strategic investments (new stores, IT systems, packaway inventory) without crippling debt loads. In contrast, some competitors or department stores have been burdened with debt and pension obligations, limiting their ability to compete on price or reinvest.

Ross also has a track record of returning cash to shareholders via dividends and share buybacks, reflecting management’s confidence in the business. It has increased its dividend annually for decades and repurchases shares opportunistically (over $1.4 billion spent on buybacks in 2023) (www.sec.gov) (www.sec.gov). This disciplined capital allocation can be viewed as a competitive advantage in attracting long-term investors, keeping cost of capital low. A lower cost of capital, as Damodaran would note, can actually strengthen a company’s strategic position – it can undertake projects and expansions that others might not afford (paperzz.com) (paperzz.com). Indeed, after capitalizing leases, Ross’s cost of capital likely remains low, reflecting its steady cash flows and risk profile (research shows retail firms’ cost of capital often decreases when leases are accounted for, because they gain the tax shield of debt and still have stable operations (paperzz.com) (paperzz.com)).

Potential Moat Erosion: It’s worth noting that some aspects of Ross’s moat require continuous reinforcement. For example, lack of e-commerce could erode its competitive edge over time if digital upstarts figure out how to sell off-price effectively online (perhaps through flash sales or improved size/fit tools to reduce e-com friction). So far, no e-commerce player has meaningfully replicated the off-price treasure hunt at scale, which is a testament to the moat of the in-store experience. However, consumer tech is a moving target, and Ross must ensure its moat of low prices and convenience keeps pace with any shifts (e.g. perhaps implementing a stronger digital marketing presence to drive foot traffic, if not selling online). Additionally, Ross’s success has inspired others – even full-price retailers have launched off-price concepts (e.g. Macy’s Backstage, Nordstrom Rack) to compete. While Ross’s scale and expertise give it an upper hand, the company must stay vigilant on execution to maintain its lead in the face of copycats.

In summary, Ross’s moat rests on cost leadership, scale-driven procurement power, vendor relationships, and operational agility. These factors create a self-reinforcing cycle: low prices and fresh assortments drive customer loyalty (Ross has very high repeat business and strong word-of-mouth), which in turn drives sales volume, which then strengthens Ross’s bargaining clout and economies of scale. As long as the company preserves these advantages and adapts to industry changes, Ross’s competitive moat should remain intact, supporting its financial performance and market share growth in the years ahead.

Financial Analysis and Performance

We will now examine Ross Stores’ financial performance, focusing on growth, profitability, and efficiency metrics over the past few years. Key figures from fiscal 2021 through 2023 are summarized below:

Fiscal Year (Jan)	Revenue (billion)	Gross Margin (%)	Free Cash Flow (billion)
2021 (FY ended Jan 2022)	$18.92 B (www.sec.gov)	27.5% (www.sec.gov) (record high)	$1.18 B (approx.)
2022 (FY ended Jan 2023)	$18.70 B (www.sec.gov)	25.4% (www.sec.gov) (margin dip)	$1.04 B (approx.)
2023 (FY ended Feb 2024)	$20.38 B (www.sec.gov)	27.3% (www.sec.gov) (margin recovery)	$1.75 B (approx.)

Note: Free Cash Flow = Operating Cash Flow – Capital Expenditures, from company filings (www.sec.gov) (www.sec.gov). FY2021 represents a rebound from the pandemic impact in 2020 (50.9% sales growth over FY2020 base) (www.sec.gov).

Revenue Growth: Ross has delivered solid top-line growth overall, though with some volatility due to external events. Fiscal 2021 saw a huge sales jump (~51% growth) as stores reopened after COVID closures (www.sec.gov). This was essentially a normalization above 2019 levels. In FY2022, sales dipped 1.2% to $18.7B (www.sec.gov), reflecting a post-stimulus slowdown and tough comparisons; comparable store sales were down 4% that year (www.sec.gov). However, growth resumed in FY2023 with revenue reaching $20.38B (+9.0%) (www.sec.gov) (www.sec.gov). Drivers included a 5% comp sales increase and ~5% more stores, plus an extra 53rd week of sales in that fiscal year (www.sec.gov). This shows low to mid-single-digit organic growth (comps) layered on top of ~4–5% new store growth. In the most recent year, both engines contributed strongly: comps +5% indicates improving traffic and ticket, and new stores (net +94) added ~$1B in sales (www.sec.gov). For context, Ross’s long-term revenue growth algorithm appears to be mid-single-digit percentage growth (similar to the off-price sector average), with fluctuations based on the economic climate.

Profitability and Margins: Ross’s profitability is robust for a discount retailer. Gross margin has ranged from 25%–28% in recent years. FY2021’s gross margin (27.5%) was buoyed by a favorable sales rebound and relatively low markdowns (www.sec.gov). In FY2022, gross margin slipped to ~25.4% due to supply chain cost pressures – specifically, sharply higher freight costs and some deleverage from comp sales decline (www.sec.gov). FY2023 saw a meaningful recovery to 27.3% gross margin (www.sec.gov) as freight and transportation costs eased and merchandise margins rebounded by 160 bps (www.sec.gov). Ross actually beat expectations on margins in the back half of 2023, highlighting effective cost management (za.investing.com) (za.investing.com). The ability to offset headwinds (like freight inflation) with buying adjustments and packaway timing is a testament to Ross’s operational discipline.

At the operating expense level, Selling, General & Administrative (SG&A) costs run around 15–16% of sales (www.sec.gov), which is relatively low. In FY2023, SG&A was 16.0% – up from 14.8% in FY2022 (www.sec.gov). This increase was largely due to higher wages and incentive compensation as performance improved (www.sec.gov) (www.sec.gov). Even so, Ross’s EBIT margin (earnings before interest and taxes as % of sales) was ~12.1% in 2023, up from 10.6% in 2022 (www.sec.gov) (www.sec.gov). On the bottom line, net profit margin came in at 9.2% for 2023 (www.sec.gov). That’s an impressive figure – higher than many retailers including some luxury chains. It reflects Ross’s tight control of costs and the tailwind of some interest income. In fact, net interest swung to a slight income in 2023 (0.8% of sales) because Ross earned interest on its cash balances during a high-rate environment (www.sec.gov) (www.sec.gov). Overall, Ross’s profitability metrics signal a high-quality earnings stream: even in tougher times (2022), it sustained 8%+ net margins, and in better times it nears 10% net margin.

Free Cash Flow & Capital Expenditures: Ross generates strong free cash flow (FCF), thanks to its steady profits and relatively modest capital expenditure needs. As the table shows, FCF ranged from about $1.0B to $1.75B in the last three years. FY2022 was the trough at $1.0B FCF (operating cash flow was temporarily suppressed by inventory rebuilds and incentive payouts post-pandemic) (www.sec.gov) (www.sec.gov). In FY2023, operating cash flow surged to $2.51B (www.sec.gov), aided by higher earnings and favorable working capital timing (e.g. later bonus payments and strong payables leverage) (www.sec.gov) (www.sec.gov). After capital expenditures of $0.76B mainly for new stores and supply chain investment (www.sec.gov) (www.sec.gov), FCF was roughly $1.75B – a significant increase year-over-year.

Ross’s capital expenditures have been in the $550–760M range annually (www.sec.gov), primarily funding new store openings (~100/year), remodels, and distribution infrastructure (the company has been building out capacity for future growth, including new distribution centers and IT systems (www.onwish.ai)). These investments are supporting its expansion roadmap. Importantly, Ross’s FCF comfortably exceeds these investments, leaving room for shareholder returns (dividends ~$0.5B and buybacks ~$1.4B in FY2023) and maintaining a strong cash position. Ross ended FY2023 with over $4B in cash and short-term investments (www.sec.gov) (www.sec.gov), partly a result of cash build during the pandemic and the windfall of strong cash generation in 2021-2023.

Balance Sheet and Leverage: Excluding lease obligations, Ross’s balance sheet is conservatively managed. It had $2.46B in senior long-term debt as of Feb 2024 (www.sec.gov), offset by substantial cash, giving a net debt close to zero on a cash-adjusted basis. Including the present value of operating leases (~$3.29B liability) (www.sec.gov) (www.sec.gov), Ross’s leverage ratio still looks reasonable (Total Adjusted Debt around $5.7B vs. FY2023 EBITDA of roughly $3.0B, yielding adj. Debt/EBITDA ~1.9x). The interest coverage is very high – interest expense was only $84.6M in 2023 (www.sec.gov), and was fully offset by interest income. Ross faces a $250M debt maturity in 2024 (which it can easily refinance or pay off with cash) (www.sec.gov) (www.sec.gov). Overall, the company has ample liquidity and moderate leverage, giving it financial flexibility. This supports a healthy credit rating (around A-/BBB+ range, historically) and underpins its ability to invest in growth even during economic soft patches.

It’s worth noting how lease accounting factors into financial analysis: Historically, operating leases allowed retailers to keep store obligations off the balance sheet, making debt and invested capital appear lower. Now with ASC 842, Ross records a lease asset and liability, which adds complexity to measuring returns. If we treat leases as debt in evaluating Return on Invested Capital (ROIC), we include the leased asset base in capital and adjust operating profit to add back rent. Ross’s ROIC (unadjusted) has been very high – often in the 20–30% range historically – thanks to its asset-light model (leasing stores instead of owning them lowers recorded assets). When adjusted for capitalized leases, ROIC would be lower, but still healthy. For instance, using Damodaran’s method of capitalizing leases, retailers often see ROIC drop closer to their true cost of capital, revealing that excess returns were somewhat overstated pre-adjustment (paperzz.com) (paperzz.com). Ross likely fits this pattern: including $3.1B of right-of-use assets on the balance sheet (www.sec.gov) increases its invested capital, but Ross’s adjusted ROIC is still solid, likely in the mid-teens percentage. The spread between ROIC and WACC remains positive, indicating Ross creates genuine shareholder value. (Damodaran’s research finds that after lease adjustments, sectors like retail still yield excess returns, though smaller; he argues the lease-adjusted view is the “more credible” measure of equity value (paperzz.com) (paperzz.com).)

Efficiency Metrics: Ross exhibits strong efficiency in metrics such as inventory turnover and return on equity. Inventory turn was around 5.5–6x in recent years (based on COGS/inventory, though packaway can distort this a bit). The key point is inventory is kept lean relative to sales – as an off-price retailer, Ross doesn’t stockpile beyond its packaway strategy, and it quickly cycles merchandise. This efficiency prevented massive markdowns even when consumer tastes shifted; Ross’s markdowns and clearance costs are well-controlled (as seen in FY2023 when it leveraged packaway instead of dumping goods). Accounts payable leverage is another strength: Ross often carries more in payables than inventory, effectively using vendor financing to fund inventory. In FY2023, accounts payable was slightly lower relative to inventory (management mentioned some decrease in payables leverage as supply chain timing normalized (www.sec.gov)), but generally Ross has enjoyed a situation where it sells inventory faster than it pays suppliers – a hallmark of retail efficiency.

Quality of Earnings: Ross’s earnings are high-quality with strong cash conversion. Net income to free cash flow conversion is typically close, barring timing differences. In FY2023, net income was $1.87B (www.sec.gov) vs FCF $1.75B – nearly all earnings converted to free cash after funding growth. There were no significant unusual items or non-cash addbacks inflating earnings. Even stock-based compensation is modest for Ross (the company culture is relatively frugal). Gross margins and SG&A trends confirm that the company managed inflationary pressures well – the fact that Ross could expand merchandise margins in 2023 despite supply chain volatility shows adept management (www.sec.gov). In Q3 FY2024, for example, although sales came in a bit soft due to hurricanes, Ross still beat profit expectations through margin gains (za.investing.com) (za.investing.com). This ability to “outperform on margins while facing sales headwinds” is cited by analysts as evidence of Ross’s cost discipline (za.investing.com). Ross leveraged fixed costs effectively (store expenses, distribution costs) to protect profitability.

Shareholder Returns: Over the long term, Ross has compounded earnings at a steady clip, which, combined with share buybacks, has led to solid EPS growth. Diluted EPS was $4.38 in FY2022 and jumped to $5.56 in FY2023 (www.sec.gov) (www.sec.gov) (boosted by higher income and an extra week). The company raised its FY2024 EPS guidance to about $6.10 at the Q3 ’24 report (za.investing.com), reflecting mid-teens growth. Ross’s return on equity (ROE) is elevated by its share repurchases shrinking equity – ROE was roughly 35% in 2023 (using average equity), which is very high. Even adjusting for buybacks, underlying ROE and ROIC are strong, indicating a business that can reinvest at attractive returns.

Financial Risks/Weaknesses: No financial analysis is complete without noting potential concerns:

• Ross’s profitability is partly dependent on external cost factors (freight, wages, tariffs). 2022 reminded that margins can be squeezed if freight or import costs surge. In 2025, new U.S. tariffs on goods from China posed a headwind – Ross sources over half its merchandise from China and other low-cost countries (www.reuters.com). The company even withdrew its FY2025 forecast in May 2025 due to tariff uncertainty, which sent the stock down 11% (www.reuters.com). While Ross later quantified the tariff impact (~$0.22–$0.25 hit to EPS) and reinstated guidance (www.reuters.com), these unpredictable cost swings could pressure margins.
• Labor costs are rising in retail. Ross has been increasing store associate wages to remain competitive, which lifted SG&A expense by ~125 bps in 2023 (www.sec.gov). If wage inflation continues without offsetting productivity gains, operating margins might face pressure.
• As noted, lack of e-commerce means Ross doesn’t have an online revenue stream. This wasn’t an issue in the financials so far (Ross thrived without it), but it does mean Ross misses out on the fastest-growing retail channel. It also limits growth to only where it can physically put stores. If store productivity plateaus or declines, having no digital sales could constrain total revenue growth.
• Ross carries significant lease obligations (over $3.3B PV). Should store economics weaken (e.g., if a store’s sales drop but the lease is fixed), Ross is still on the hook for rent. This is a common retail risk – leases are long-term commitments. Ross mitigates this by selecting good locations and having flexibility through lease renewals/terminations when possible (www.sec.gov) (www.sec.gov). Nonetheless, if consumer patterns shift in ways that reduce store traffic permanently, those leases become a burden (this was a fear during the rise of e-commerce – though off-price has bucked the trend so far).

Summary: Ross Stores’ financials paint the picture of a high-quality retailer: consistent revenues, resilient margins, strong cash flows, and prudent use of capital. It has demonstrated growth with profitability, which many retailers struggle to balance. Even as Ross invests in expansion (nearly 100 new stores a year) and distribution capacity for the future, it continues to return cash to shareholders and maintain a fortress balance sheet. This combination – growth, profitability, and financial strength – gives Ross the ability to thrive and outcompete in its sector. The company appears to have managed the post-pandemic volatility adeptly, emerging with record sales and profits in 2023. Going forward, investors will watch if Ross can sustain mid-single-digit growth and stable margins as it executes on its expansion and navigates external headwinds like tariffs. The financial track record so far provides confidence that Ross’s formula is working and has room to run.

Growth and Future Outlook (Scenarios & Catalysts)

Ross Stores’ future growth will be shaped by its expansion plans, consumer trends, and strategic execution. We consider several scenarios – bull, base, and bear – to map out the potential trajectory over the next 3–5 years, incorporating industry drivers and risks identified earlier.

Key Growth Drivers:

• Store Expansion: Ross management is “confident in our expansion plans” and sees “plenty of opportunity” to reach at least 2,900 Ross and 700 dd’s stores over time (www.retaildive.com). This implies roughly 1,500 new stores (about +70% from current levels). In practical terms, Ross has been opening ~90–100 stores per year recently (www.sec.gov). If it maintains ~5% annual unit growth, by 2028 it could approach ~2,700 stores. Base case: ~4–5% new store growth annually. Bull case: Acceleration to 6%+ if real estate opportunities abound (for instance, if more competitors close and free up desirable sites, Ross might open more aggressively or enter remaining untapped states). Bear case: Slower ~3% growth if expansion hits hurdles (e.g., difficulties in new regions or a pause due to economic downturn). Notably, Ross just entered markets like New York and Minnesota in 2023 (www.retaildive.com), demonstrating it can still push into white space. The expansion of dd’s DISCOUNTS also offers growth in more price-sensitive urban markets.

• Comparable Sales Growth: Ross’s same-store sales (comps) are a function of customer traffic, average basket size, and pricing. Historically, Ross comp growth has been in the low single digits (excluding extreme swings around 2020). Base scenario: assume comps stabilize around +2–4% annually, driven by steady customer traffic growth and modest price/mix increases. This is supported by Ross’s initiatives to refine assortments and bring in slightly better brands to attract new customers (management has emphasized balancing “sharply priced brands” with some more premium offerings to draw trade-down shoppers (www.onwish.ai) (www.onwish.ai)). Bull case: comps could run higher, ~5%+, if macro conditions prompt significant trade-down (e.g., in a mild recession, Ross might see a surge of new shoppers from higher-end stores). Additionally, if Ross invests in merchandising (e.g., expanded categories like home or beauty), it could boost average basket sizes. Bear case: comps could be flat to slightly negative in a scenario where inflation severely pinches low-end consumers or if competition intensifies – for instance, if a major competitor launches an aggressive pricing campaign or if stimulus-driven spending reverses. Another downside comp scenario is if fashion misses occur; off-price retailers occasionally have quarters where the merchandise mix doesn’t resonate, leading to weaker sales.

• Margins and Operating Leverage: Ross’s future profit margins will depend on cost trends and the sales environment. Base case: gross margins hold around 27–28%, as cost pressures from wages or tariffs are offset by efficiencies (e.g., ongoing supply chain improvements, higher sales volumes leveraging fixed costs). Ross is investing in its supply chain (planning new distribution centers and IT systems) to support growth and long-term cost efficiency (www.onwish.ai). These investments may raise cost structure in the short term but should enable margin preservation as the business scales. Bull case: margins could expand modestly – perhaps gross margin up to ~28–29% – if favorable factors align (e.g., continued normalization of transportation costs, higher mix of home goods or other high-margin categories, and scale economies). Also, if Ross starts to see lower shrink (theft) or optimizes labor scheduling with tech, SG&A can be kept in check. With strong sales, EBIT margin could move back toward 13% (similar to pre-2020 peak levels). Bear case: margins compress if cost headwinds outpace sales. For example, further tariff increases on imports from China could raise merchandise costs; Ross estimated the current tariffs in 2025 would hit EPS by ~$0.22 (roughly a 30–40 bps impact on net margin) (www.reuters.com). If tariffs broaden or deepen, that impact grows. Likewise, wage inflation or higher rent expenses could push SG&A upward. In a stagflation scenario (high costs, weak sales), Ross’s EBIT margin might slip to ~10% or lower, especially if comp sales are negative and fixed store costs deleverage.

Fiscal Scenario Modeling: Bringing it together, here’s a simplified projection of Ross’s performance under the three scenarios for, say, the next 3 years:

• Bull Case: The economy experiences a modest downturn, driving more shoppers to off-price. Ross opens ~100 stores/year and comps average +5%. Revenue grows ~9–10% annually, topping ~$27B by FY2027. Gross margin expands to ~28.5% as buying opportunities are plentiful and lower inbound freight rates persist. EBIT margins inch up to ~13%. EPS grows high-teens % per year (boosted by buybacks), reaching perhaps $8.00 by FY2027. In this scenario, Ross gains significant market share – its sales growth outpaces overall apparel retail, indicating successful execution and consumer wallet share gains from department stores. Upside catalysts that could lead to this outcome include: a wave of retail bankruptcies (driving traffic to Ross and letting it negotiate low rents), or a structural shift where brands rely even more on off-price channels to clear inventory (giving Ross abundant high-quality product).

• Base Case: The economy is stable with moderate growth. Ross opens ~90 stores/year (mostly Ross, some dd’s) and comps ~3%. Total revenue grows ~7% annually, reaching around $24–25B by FY2027. Margins hold steady: gross margin ~27%, EBIT margin ~12%. EPS grows roughly 10% annually (mid-single-digit sales plus a bit of margin improvement and buybacks), hitting around $7.00 by FY2027. This assumes no major shocks – core customer demand remains healthy (perhaps bolstered by slight improvements in real wages at low end), and competition remains rational. Ross’s operating model continues to produce consistent results, and the company delivers on its guidance of mid single-digit sales and EPS growth. Key drivers in this base scenario: continuous flow of merchandise, incremental improvements in merchandising (e.g., better data analytics to tailor store inventory by region), and steady expansion into remaining markets (Ross might enter 1–2 new states each year). The base case essentially mirrors Ross’s pre-pandemic trajectory, adjusted for current scale.

• Bear Case: A combination of economic and execution challenges hits. Perhaps inflation remains sticky in food/housing, severely constraining low-income shoppers’ discretionary spend. Ross’s comps could be 0% or even -1% on average as traffic stagnates. It slows expansion to ~60 new stores/year to conserve capital or due to finding fewer attractive sites (maybe higher interest rates make new leases pricier). Revenue growth might slow to ~3–4% (mostly from new stores). Gross margin might dip toward 26% if Ross has to take deeper markdowns to stimulate sales or faces higher merchandise costs. EBIT margin might compress to ~10–11%. Under this scenario, EPS growth could stall in the low single digits – possibly mid-$5 range for a while – as cost pressures offset new store contributions. A severe recession (with high unemployment) could temporarily cause an even sharper sales drop, though off-price tends to recover quickly afterward. Other bearish factors: intensifying competition – e.g., if TJX were to aggressively cut prices to gain share, or if big-box retailers like Walmart/TARGET pivot more to apparel discounts – could force Ross to lower margins to compete. Additionally, any execution missteps such as a failed merchandising strategy (e.g., misjudging fashion trends for a season) could exacerbate weakness. The bear case sees Ross still profitable and cash-generative, but essentially treading water until conditions improve.

Risks and Wildcards:

• Tariffs and Trade Policy: As noted, tariffs on Chinese imports are a real-time issue. In May 2025, Ross withdrew guidance due to uncertainty around tariffs on apparel (www.reuters.com). They have since quantified and navigated it, but trade policies can change. A further escalation in U.S.-China trade tensions is a wildcard that could affect Ross’s sourcing costs and require reengineering the supply chain (sourcing more from other countries possibly at higher cost in short term). Conversely, removal of tariffs would be an upside wildcard, boosting margins unexpectedly.

• Consumer Behavior Shifts: The popularity of off-price is a secular trend now, but one wildcard is the resale market. Younger consumers might also shop secondhand (via platforms like ThredUp or Poshmark) for bargain deals on branded clothes. While not yet a huge threat to Ross, the rise of recommerce shows consumers have more avenues to get cheap brand-name goods. Ross’s treasure hunt is in-person; a generational shift toward digital-native bargain hunting could introduce competition Ross hasn’t faced before (essentially, P2P and online thrift competing for the same customer spending). Ross may need to ensure its in-store experience remains compelling enough to draw people away from online options.

• Technology and Automation: Another potential scenario factor: how well Ross embraces technology for efficiency. It has historically been a bit behind the cutting edge (due to focus on simplicity). If Ross successfully implements advanced inventory optimization, self-checkout, or supply chain AI systems, it could reduce costs further or improve sales by having the right product at the right store at the right time. Conversely, if it falls behind on tech (especially relative to competitors optimizing omni-channel inventory), it might lose some efficiency edge. Management has indicated they’re investing in IT upgrades and data analytics to support growth (www.onwish.ai). The outcome of these investments can tilt future results modestly.

Long-term Outlook: Considering all scenarios, Ross’s long-term outlook appears positive. Even the bear case likely sees a return to growth after a rough patch, given off-price’s resilience. The most likely trajectory (base case) is that Ross will continue to grind out low double-digit EPS growth through a combination of new stores, modest comp gains, and share buybacks. The company’s explicit goal is to “expand our off-price model in current and new regions” while maintaining high returns (www.sec.gov) (www.sec.gov), and it has a credible path to do so (both through geographic expansion and capturing more wallet share as value retail grows).

Ross also positions itself as adaptable: “we are not tied to one view of who we are; we can flex with what the customer wants.” (www.retaildive.com) This suggests that if consumer preferences evolve (say, favoring different categories or shopping patterns), Ross will adjust its mix. For example, in the future, Ross could expand categories like home goods, beauty, or even trial small-format stores if needed, to chase growth opportunities.

Another growth vector to watch is market share gains from competitors. Department stores and mid-tier chains (e.g., Kohl’s, Bed Bath & Beyond which already went bankrupt, etc.) have been struggling; each time one shrinks or fails, off-price tends to pick up some of their sales. Ross highlighted share gains as a factor in 2023 and expects that to continue (www.sec.gov) (www.sec.gov). The total available market for off-price increases as fewer alternatives exist for bargain shoppers in physical retail.

In summary, Ross’s future looks bright if it executes well. Its growth is not explosive – this is a steady compounder story rather than a hyper-growth one – but it’s reliable. The main risks (macroeconomic pressure on consumers and potential competition/strategy missteps) seem manageable given Ross’s past performance and proactive management. The scenarios above indicate that even in challenging conditions Ross remains profitable and in good financial shape, while in favorable conditions it can thrive and significantly increase shareholder value.

Academic perspective: In assessing these scenarios, it’s useful to link with academic frameworks. For instance, growth in retail can be analyzed through the lens of product line strategy – expanding into new categories or improving private label offerings (Caprice’s work on product line differentiation might imply Ross could consider whether introducing a premium private label in select categories could boost margins without cannibalizing national brands (www.tse-fr.eu). However, Ross has stayed away from private labels to date, focusing on its core competency of opportunistic buying of others’ brands. This likely remains the strategy, as the consumer surplus provided by finding branded bargains is Ross’s key value prop, and research suggests too much private label might actually reduce consumer welfare in this context (www.tse-fr.eu).) From a financial angle, Damodaran’s insights on leases and growth highlight that as Ross grows, its lease commitments will grow too – in scenario planning, that means an expanding “debt” equivalent. But importantly, if growth is pursued profitably, the present value of new leases is outweighed by the NPV of new store cash flows. When testing scenarios, one should adjust the projected cash flows for lease payments to accurately value the growth. Damodaran notes that capitalizing leases can affect reinvestment rates and growth calculations (paperzz.com) (paperzz.com) – for Ross, incorporating the planned new store leases into the model is crucial to not overestimate free cash flow in expansion. Our scenario assumptions have implicitly done so (e.g., new stores increase capex and lease outflows, which temper net cash generation in early years but yield returns over time).

All told, Ross has multiple levers to drive growth and appears well-positioned to navigate the retail environment ahead. Next, we’ll translate this outlook into a valuation to see whether the market’s current pricing of ROST stock is too pessimistic, optimistic, or about right.

Valuation Analysis (DCF and Multiples)

To assess Ross Stores’ valuation, we perform an intrinsic value analysis using a discounted cash flow (DCF) approach, and cross-check with market multiples. The goal is to determine if ROST shares are overvalued or undervalued relative to the company’s fundamental prospects.

Reverse-DCF/Expectations: At the current stock price (approximately $135–$140 as of August 2025), we can infer what growth and margin assumptions the market is pricing in. ROST’s FY2024 EPS guidance is around $6.10–$6.20 (za.investing.com). That puts the stock’s P/E ratio near 22x forward earnings. For a retailer growing EPS ~10% (base case), a P/E of 22x suggests the market is assuming sustained growth with low risk – a moderate growth premium over the broader market’s ~18x.

In terms of DCF, using consensus-like assumptions: suppose Ross can grow revenues ~6% CAGR over the next 5–10 years (combining ~4% store growth and ~2% comp growth), with stable EBIT margins ~12%. capital expenditures will grow with new stores but remain around 3–4% of sales (as historically). Working capital is roughly neutral (Ross’s negative working capital dynamic offsets inventory growth). Using a discount rate (WACC) around 7.5% – which reflects a blend of a cost of equity near 8–9% (retail is somewhat defensive for beta) and cost of debt ~4%, plus Ross’s high equity ratio – and a terminal growth of 2%, we can solve for the implied fair value.

DCF Outcome: Under those base assumptions, our DCF model yields a value per share in the ballpark of $120–$130. Here’s the intuition: Starting from FY2024 net income ~$2.0B and FCF ~$1.4B (after growth capex), growing that FCF mid-single digits for a decade and then at 2% perpetually, the present value of cash flows plus terminal value (discounted by ~7–8%) roughly equals $40–$45B enterprise value. After adjusting for net debt/leases (~$5.7B obligations minus cash) (www.sec.gov) (www.sec.gov), equity value is around $35–$40B. With ~335M shares, that equates to ~$120 per share. This suggests that at ~$135–$140, the stock is pricing in slightly more optimistic scenarios: perhaps higher long-term growth or lower risk than our base input.

If we adjust to a bullish scenario – say revenue growth 8% for several years (with stronger comps or faster store openings), and/or margin improvement to ~13% EBIT – the DCF value increases. For example, if we project ~8% growth for 5 years then 5% for another 5, and terminal 2.5%, we might get equity value in the high $40Bs, closer to $150 per share. Conversely, a bear-case DCF (growth 4%, margin slipping to 11%, WACC a bit higher at 8%) could yield ~$100 or lower. So the current price in the $130s implies the market is leaning toward the upper middle of possible outcomes – not the absolute bull case, but certainly expecting Ross to meet its growth plans and maintain solid margins. The margin of safety for investors at this price is not huge, but the price also doesn’t appear wildly detached from fundamentals given Ross’s reliability.

Multiples Comparison: Let’s cross-check with some valuation multiples:

• P/E Ratio: As noted, ~22x forward earnings. Historically, Ross has traded around 18–22x forward earnings in normal times, with higher multiples in low-rate environments. This is roughly in line with key peer TJX Companies, which trades around 23x forward P/E, and above Burlington (which is smaller but higher-growth, often ~25–30x P/E). The P/E suggests the market views Ross as a high-quality, steady grower deserving a slight premium to the market. It’s not in bubble territory; for context, during the 2010s when Ross was growing faster, it often commanded ~20x. So 22x with growth resuming seems reasonable.
• EV/EBITDA: Ross’s enterprise value including leases is around (~$46B market cap + $5.7B net debt/leases = $51.7B EV). Using FY2023 EBITDA (which we can estimate: EBIT $2.45B plus D&A $400M plus rent add-back if one wanted to compare to lease-adjusted, but let’s stick to GAAP EBITDA ≈ $3.0B), EV/EBITDA is ~17x. If we treated operating leases as debt and added back rent to EBITDA (making a lease-adjusted EBITDA), the multiple might be lower, but similarly TJX on a comparable basis trades around 16–17x EV/EBITDA. So Ross is not cheap on EBITDA basis, but it’s within the typical range for off-price retailers (which often trade in mid-teens EV/EBITDA due to their resiliency and cash flow).
• EV/Sales: Using EV ~$52B and sales ~$21B, EV/Sales ~2.5x. For a retailer with ~12% EBIT margins, that is consistent with the P/E. Notably, Ross’s EV/Sales is higher than many other retail sub-sectors (e.g. department stores are <1x, specialty retailers often ~1–2x). Off-price is valued more richly because of better margins and growth. TJX, for instance, is about 2.1x EV/Sales on a larger base (TJX has slightly lower margins but similar growth, plus a bit lower multiple due to size). Burlington, with lower margins but faster growth, has ~2.0x EV/Sales. Ross’s higher EV/Sales reflects its higher profitability and strong cash generation.

Lease Adjustments in Valuation: It’s important when comparing multiples to ensure consistency in how leases are treated. A classic mistake is to compare a retailer’s EV/EBITDA without adding leases to EV or rent to EBITDA. In our case, we added lease liabilities to EV. If an investor didn’t, Ross’s EV/EBITDA would look lower (~15x using just debt, excluding leases), which might seem like a bargain relative to peers. But academically, and as per “Leases, Debt and Value” research, we know leases are debt-like and should be included (paperzz.com) (paperzz.com). Doing so gives a more accurate picture. In Ross’s valuation, including leases doesn’t drastically change the conclusion – it remains in a fair range – but it prevents underestimating the firm’s enterprise value. As Damodaran notes, capitalizing leases often reduces excess returns and can slightly lower cost of capital (paperzz.com) (paperzz.com); for valuation, that means a bit more EV but also slightly lower WACC. In practice, Ross’s cost of capital might have ticked down after including leases (as it effectively increased its debt ratio) (paperzz.com) (paperzz.com), which might justify a somewhat higher multiple.

Intrinsic vs. Market Value Judgment: Overall, Ross looks approximately fairly valued to slightly expensive at current market prices. The DCF doesn’t show a huge disconnect – perhaps the market is baking in optimistic but not unrealistic growth assumptions. For example, the stock pricing may anticipate that Ross will indeed achieve something close to its 3,600 total store potential in the next 15-20 years, which underpins longer-term growth beyond our 10-year window. If one believes Ross will saturate the market and slow growth much sooner, then the current price might be rich.

That said, there’s a case for a modest valuation premium: Ross offers a rare mix of defensive characteristics and growth, as evidenced by it raising profit forecasts while many retailers issued cautious outlooks (www.reuters.com). In Q3 2024, Ross lifted its annual EPS guidance, whereas some peers were more guarded (www.reuters.com) (www.reuters.com). Such performance can command a premium. Additionally, Ross’s return on invested capital (adjusted for leases, likely mid-teens) is above its cost of capital (~7–8%), meaning it can grow profitably; companies that can redeploy capital at high returns often deserve higher multiples.

Margin of Safety & Upside/Downside: If we assume the base case is fully reflected in the stock, an investor’s upside would come from Ross exceeding expectations – e.g., delivering comp growth in the mid-single digits or expanding margins more than anticipated. If Ross enters a virtuous cycle of stronger sales (perhaps due to a competitor misstep or more dramatic consumer shift to off-price), the stock could see multiple expansion to 25x earnings or more, similar to top-tier consumer staples or other defensive growth stocks. That scenario might push the stock into the $160s (some bullish analysts likely have targets in that range if assuming ~$7 EPS and 23–24x multiple). Conversely, downside risk would materialize if growth falters or margins slip, as discussed. If Ross, for instance, guided down or had a surprise earnings miss (maybe due to a sudden consumer spending drop), the stock could correct 10–20%. At around $110 (which would be ~18x a trimmed $6 EPS), the stock would start to look like a bargain given Ross’s history – implying the market would be pricing a protracted slump.

Relative to Peers: We should also note that within off-price, Ross is slightly cheaper than Burlington and on par or a tad pricier than TJX on P/E. Burlington has more growth potential (planning to nearly double store count) but currently has lower margins; its stock has more volatility. TJX is a juggernaut with more geographic diversification and an arguably deeper moat (because of HomeGoods, global presence, etc.), so TJX often trades at similar or slightly higher multiples than Ross. Investors might arbitrage between them – currently, if Ross’s multiple is a little above TJX’s, some might rotate into TJX or vice versa depending on whose near-term prospects look better. However, these differences are small, indicating the market sees all major off-pricers as quality stocks with premium valuations.

Valuation with Lease Perspective: One more academic angle – Damodaran’s paper emphasizes using lease-adjusted figures for value. If we explicitly incorporate leases into a DCF, we would treat lease payments as financing (thus in free cash flow, add back rent after taxes and subtract the implied depreciation/interest separately). Doing so for Ross would slightly increase operating cash flows (since rent is removed from OpEx) but also increase the capital base (lease assets) and debt. In theory, if done correctly, it should yield the same value if the cost of capital is adjusted. The paper suggests that ignoring leases might mis-estimate value – but with the new accounting, the key is to avoid double counting. The key takeaway is we have considered leases in the EV and cost of capital, which aligns with best practice. As Damodaran notes, “the lease-capitalized value is a better measure of true equity value per share” (paperzz.com) (paperzz.com). For Ross, we have essentially done that by treating lease obligations as debt in our analysis of EV/EBITDA and WACC.

Bottom Line: Ross’s shares seem to trade around fair value given the company’s fundamentals and industry outlook. The current price reflects confidence in Ross’s continued expansion and margin management – possibly a bit of a premium for its strong execution and defensive traits. It’s not a screaming bargain, but nor is it egregiously overpriced relative to peers or its own history. Investors should expect future stock appreciation to come primarily from earnings growth (driven by new stores and modest comp gains), rather than from multiple expansion. Conversely, any investment at these levels should be cognizant of execution risk – if Ross stumbles or the off-price thesis weakens, a de-rating could occur.

In light of this valuation, an investor’s decision might hinge on their conviction in Ross’s growth story: if you believe Ross will handily beat current growth expectations (a scenario where our bull-case DCF is more accurate), the stock has upside. If you worry about macro headwinds or saturation (our bear case), then the stock might be fully or slightly overvalued. With that in mind, we turn to the technicals and trade strategies, as those can guide timing and method of any investment in ROST.

Technical Analysis and Market Positioning

Beyond fundamentals, it’s useful to examine Ross Stores’ stock price trends and technical indicators to gauge market sentiment and identify potential entry/exit points. We’ll also look at ownership structure and recent trading dynamics that might influence the stock.

Price Trend: ROST’s stock has been in a long-term uptrend. Over the past 5 years, it has generally made higher highs and higher lows, albeit with volatility during the 2020 pandemic and a dip in 2022. In the last 12–18 months (2024 into mid-2025), the stock has performed strongly, reflecting robust financial results and upbeat guidance. By August 2025, ROST traded around $140 per share, near its all-time highs (business.times-online.com). This price level represents a clear breakout above the pre-pandemic high (~$120) and the late-2021 high (~$134). The fact that the stock successfully surpassed these previous resistance levels and held the gains is a bullish sign – it indicates that investors have reevaluated Ross’s prospects higher than in the past.

Support and Resistance: Key technical levels for ROST include:

• On the downside, the prior breakout zone around $125–$130 now likely serves as a support area. This region was a peak in early 2023 and again approached in mid-2024; once the stock broke above $130 decisively in 2025, that level should act as support on pullbacks. Further support is around $115–$120 (which was an earlier trading range high and roughly coincides with the 2022 highs and 200-day MA in past months). If the stock were to retrace, one would watch these zones for buyer interest.
• On the upside, $140–$145 is the near-term resistance band (essentially the recent highs). If ROST can push above $145 on strong volume, it would mark a new high and signal continuation of the uptrend – possibly opening the door towards the $150+ area. Psychological round numbers like $150 could act as resistance simply because of profit-taking.

As of the latest data, the stock had consolidated just under the mid-$140s after a strong run – a normal breather that often precedes either a further breakout or a pullback to support.

Moving Averages: The stock is trading above its key moving averages. The 50-day moving average (50 DMA) and 200-day moving average (200 DMA) are both sloping upward, confirming an uptrend. For instance, the 200 DMA is likely around the low $120s, below the current price, reflecting the gains over the past year. These moving averages can act as dynamic support; notably, in 2024, ROST found support near the 200 DMA during overall market dips. The current spread between the price and the 50 DMA might indicate the stock is a bit extended (which is why we saw some consolidation). If the price were to pull back to the 50 DMA (say in the high $130s) or even the 200 DMA (low $120s), many technical traders would view that as a potential buy-the-dip opportunity, provided the fundamental story remains intact.

Momentum Indicators: The Relative Strength Index (RSI) for ROST has occasionally reached overbought levels (>70) during strong rallies – for example, likely in mid-2025 when the stock soared after earnings and guidance raises. Recently, after the brief overbought condition, the RSI has probably cooled to the 50–60 range due to the modest consolidation, indicating momentum is neutral-to-positive. An RSI in the 50s suggests there’s room for the stock to run again before hitting extreme overbought territory. The Moving Average Convergence Divergence (MACD) indicator for ROST turned positive as the stock’s rally gathered steam in 2023 and 2024. Currently, the MACD histogram might be flattening (consistent with a slight consolidation), but is still above zero – again reflecting a bullish bias in medium-term momentum. There have not been any major bearish divergences observed; price highs have been confirmed by momentum highs, which is encouraging.

Volume and Accumulation: On up days, volume in ROST has often spiked, especially around earnings releases. The stock saw a notable volume jump and an 8% price pop on Nov 21, 2024, when Ross raised its profit forecast on strong results (www.reuters.com) (www.reuters.com). That suggests institutional accumulation on good news. In contrast, on May 22, 2025, when Ross withdrew guidance due to tariff uncertainty, the stock dropped sharply (11% after-hours) (www.reuters.com), with heavy volume likely the next day as well – implying some fast money or weak hands fled. However, the stock stabilized in the weeks after, indicating that longer-term investors stepped in, seeing the tariff issue as manageable. Overall, the On-Balance Volume (OBV) trend for ROST has been rising over the last year, which means volume on up days outweighs volume on down days, a bullish sign that the stock is under accumulation.

Institutional Ownership: Ross has high institutional ownership – roughly 80–85% of the float is held by institutional investors (www.marketscreener.com) (www.marketscreener.com). This includes large index funds (Vanguard, BlackRock) as well as active mutual funds and hedge funds specializing in retail/consumer stocks. The high institutional stake signals confidence from big money in Ross’s fundamentals. It also means the stock’s trading can be influenced by institutional flows. For example, during sector rotations (say, if consumer discretionary stocks go out of favor due to recession fears), institutions might trim ROST along with peers, causing broader moves not entirely tied to company-specific news. Conversely, strong earnings often lead to upgrades or increased positions by funds. The numerous institutional holders and analyst coverage provide a degree of support; if the stock dips without a fundamental reason, one often sees analysts defending it and buyers stepping in.

Short Interest: Short interest in ROST is relatively low, around 1.5–2% of the float (fintel.io). This indicates there isn’t a large contingent betting against Ross. A low short float makes a short squeeze unlikely (and indeed Ross isn’t the kind of highly shorted, high-flyer stock that gets meme-ish squeezes). It suggests that most market participants agree with the positive outlook, or at least don’t see an imminent downturn for Ross. From a technical perspective, low short interest means the stock may not have as much “fuel” from forced buying on rallies (as heavily shorted stocks do), but it also implies less risk of sudden dumps due to short-sellers piling on bad news. In essence, sentiment is more bullish than bearish, and any skepticism about valuation isn’t strong enough to attract many shorts.

Insider Transactions: There hasn’t been notable insider trading activity outside of normal planned sales. Ross’s leadership (CEO Barbara Rentler, etc.) have sizable stock and options holdings as part of compensation, and they have occasionally sold shares according to 10b5-1 plans – but there have been no red-flag insider dump patterns. Insiders still hold only a small percentage of the company (below 1–2%), which is common for a 40-year-old public company with no dominant founder stake. The lack of insider buying isn’t concerning given the stock’s consistent rise (insiders might feel adequately vested from their grants). Overall, insider sentiment seems neutral, aligning with the idea that current prices are reasonably reflecting the company’s worth.

Technical Outlook: At present, technicals for ROST lean bullish but with a note of caution due to the stock’s proximity to record highs. The primary trend is upward – higher highs, higher lows – and momentum is positive. A breakout above the $140s on volume could signal the next leg up. Conversely, if the stock fails to break resistance and falls below near support (like $130), it could indicate a deeper correction, perhaps back to the $120 area (which might coincide with the 200-day MA by then). However, such a move would likely require either a market-wide sell-off or a company-specific disappointment.

Traders will be watching earnings releases and guidance updates as catalysts. Ross tends to experience swift moves around earnings: e.g., in past earnings, an upbeat report led to a sharp rally (www.reuters.com), whereas cautious outlooks led to drops (www.reuters.com). The next earnings (e.g., Q3 2025 report in late Nov 2025) could test that $140 resistance if results or holiday outlook differ from expectations. If one expects a volatile reaction but isn’t sure of direction, option strategies (to be discussed in the final section) could be considered, like straddles or strangles to play the move.

Market Positioning: From a market standpoint, ROST fits in the consumer discretionary sector but is often viewed as a defensive retail stock (given its performance in downturns). This dual nature means it can attract rotation from both defensive-minded investors and those seeking retail exposure. For instance, in mid-2025, concerns about consumer spending hurt many retailers, but off-pricers like Ross actually benefited as investors saw them as winners of a trade-down environment (www.reuters.com). This dynamic positions Ross favorably – in times of uncertainty, it’s a relatively safer haven within retail. The stock’s behavior in 2024–2025 shows it often outperformed retail indices during weak consumer confidence periods.

However, if the broader market shifts strongly risk-on, money might rotate into higher-growth or beaten-down names and out of stable performers like Ross. Thus, relative strength of ROST compared to the S&P 500 or retail ETF (XRT) is worth monitoring. As of now, ROST’s relative strength vs the retail sector is near multi-year highs, which is positive. Should that relative strength start weakening (stock not making new highs while the sector does, for instance), it might signal a sentiment change.

In conclusion, technical analysis confirms Ross Stores as a strong stock in a favorable trend, with broad investor sponsorship and little sign of distribution. Traders looking to take positions can use the identified support/resistance levels and indicators as guides. Long-term investors may be less concerned with short-term technicals, but even for them, buying on dips near support (and not chasing near overbought highs) can improve entry points. With this technical backdrop, we can formulate some trading and investment strategies to capitalize on Ross’s outlook.

Final Research Conclusion and Recommendations

Investment Thesis Recap: Ross Stores is a fundamentally solid retailer with a proven off-price model, strong competitive moat, and steady growth prospects. The company has demonstrated resilience and operational excellence, translating into consistent financial performance (rising sales, robust margins, ample free cash flow). It benefits from favorable consumer trends toward value shopping and has a long runway for expansion in its core market. While the stock is not a bargain, it trades at a valuation that reasonably reflects its quality and growth – arguably a slight premium, but deserved given Ross’s track record and defensive characteristics.

Strengths:

• Resilient Business Model: Off-price retail tends to perform well in various economic climates, and Ross’s focus on low prices for brand-name goods gives it a durable appeal. It has a flexible inventory strategy and low cost structure that protect profitability (www.sec.gov) (www.sec.gov).
• Financial Strength: Ross has high margins for a retailer and generates significant cash. It maintains prudent financial policies (modest debt, lots of liquidity) enabling continued dividends and buybacks. This financial stability reduces downside risk.
• Market Position & Moat: Ross’s scale and vendor relationships are hard for others to replicate, providing a moat. It is gaining market share from struggling competitors, and has the opportunity to fill retail voids left by bankruptcies (www.sec.gov). The planned expansion to 2,900+ stores signals management’s confidence in plenty of untapped demand (www.retaildive.com).
• Execution: Management has a strong execution record – e.g. controlling costs in 2023 to beat earnings despite sales headwinds (za.investing.com). They have guided conservatively and then exceeded expectations, which builds credibility. The company was nimble during COVID disruptions and came out stronger.

Risks:

• Consumer Weakness: Ross’s low-to-middle income shoppers remain sensitive to economic conditions. If inflation in essentials flares up or unemployment rises, discretionary purchases could slow (Ross itself warned of “sluggish consumer spending” impacting 2024 forecasts (www.reuters.com)). A sharp downturn could hit sales, though off-price often recovers quickly as people trade down.
• Margin Pressures: Rising labor costs, higher sourcing costs (due to tariffs or supply chain issues), or increased markdowns could pressure margins. Ross’s profit margins are healthy but not immune – FY2022 showed how external cost pressures squeezed results. Shrink (theft) is another margin risk across retail now; Ross hasn’t flagged it as a major issue yet, but industry-wide it’s something to watch.
• Competition: The off-price sector is getting crowded. TJX (Marshalls, T.J. Maxx) is a formidable competitor, and Burlington is revamping to be more competitive. There’s also competition for merchandise – if more players chase the same excess inventory, it could raise Ross’s costs or limit supply. Additionally, non-traditional competitors like Amazon’s “Outlet” section or deep discount chains could nibble at the edges of Ross’s market. Ross must continue to differentiate through price and assortment.
• Strategic Limitations: The lack of e-commerce could become a bigger handicap if consumer habits shift further online, or if a competitor cracks the code for online off-price shopping (za.investing.com). Also, Ross’s entire growth plan is U.S.-centric; unlike TJX, it hasn’t expanded internationally. If U.S. saturation happens faster than expected or if international off-price booms (TJX Europe, etc.), Ross might miss opportunities abroad.
• Management Transition: One risk flagged by observers is upcoming leadership transitions (za.investing.com). Ross’s CEO is long-tenured (Barbara Rentler has been CEO since 2014, and with Ross for decades). A potential retirement in coming years could cause uncertainty. That said, Ross has a deep bench and historically smooth transitions (the prior CEO, Michael Balmuth, stayed on as Executive Chairman during transition). Still, any major change in strategy or culture under new leadership would be a watch item.

ESG and Other Considerations: Ross has occasionally faced criticism regarding supply chain ethics (like ensuring vendor factories’ compliance) and environmental impact (fast fashion concerns, though off-price arguably extends product life by selling excess that might otherwise be wasted). These haven’t materially affected investor sentiment but are worth monitoring as ESG awareness grows. Ross does positively get credit for offering affordable clothing (social benefit) and has initiatives for community support. Governance-wise, Ross is seen as shareholder-friendly with its cash returns and generally good disclosure.

Investment Criteria: For an investor evaluating Ross: if you seek a combination of growth and defensive stability, Ross fits well. It may not double your money quickly, but it has a lower risk of catastrophic loss than many retailers, and it steadily grinds upward in value. If your criteria are a wide moat business with solid returns on capital and a long history of execution, Ross checks those boxes. On the other hand, if you require a cheap valuation or a high dividend yield, Ross might not meet those criteria – it’s more of a total return play (moderate dividend + stock appreciation). Growth-oriented investors might prefer faster-moving companies, but often at the cost of higher risk; Ross is more about reliable compounding.

Buy/Sell/Hold Recommendation:

• Long-Term Investors (3+ year horizon): Buy on dips / Accumulate. Ross looks poised to continue delivering shareholder value via earnings growth and buybacks. While current valuation is fair, it’s not prohibitive. Long-term holders could initiate a position at current levels, but it would be wise to keep some cash to add if the stock pulls back to the $120–$130 area (which would offer a more attractive ~18x earnings entry). If you already hold ROST, it’s a solid Hold unless the thesis changes. There’s no glaring reason to sell a well-performing, high-ROIC business with plenty of growth ahead. Only if the stock became very overvalued (say, >30x P/E without an increase in growth rate) or if the competitive landscape changes adversely, would trimming be suggested.

• Medium-Term (6–12 months traders): Neutral/Hold, lean Bullish. At $135+, Ross likely needs continued good news to fuel much higher prices in the near term. The stock has had a strong run; further upside over the next year might be somewhat capped to perhaps the $150–$160 range unless earnings surprise significantly to the upside. However, downside seems limited barring a consumer recession. Therefore, a neutral stance is warranted – it’s not a screaming short or reduce, given momentum is positive, but new buyers might get a slightly better entry on a market dip or an earnings-related wobble. If one is already in from lower levels, one could ride the trend but perhaps set a trailing stop or protective puts to guard against any sudden macro shocks.

• Short-Term (days/weeks traders): Range Trading or Wait for Breakout. In the short term, ROST is in a consolidation. Traders can consider buying near support (~$130) and selling near $140 resistance, as the stock has been bouncing in that range recently. A breakout above $145 with volume could be chased for a quick momentum trade to perhaps $150. Conversely, if it loses $130 support, short-term traders might short or avoid until it finds the next support (around $120). But given the overall uptrend, betting against Ross for anything more than a quick technical trade is risky. Short interest is low, so there’s not much downward pressure aside from general market moves.

Options Strategies for ROST (targeted to options-savvy traders):

Ross Stores, with its moderate volatility and steady trend, offers some interesting options play opportunities:

• Cash-Secured Puts (Wheel Strategy – Entry): For those looking to enter or add to a position, selling cash-secured put options on dips could be attractive. For example, if ROST stock is around $135, one could sell a put at a strike of $130 (a support level) for a future expiration, collecting premium. If the stock stays above $130, you keep the premium (generating income); if it falls below and the put is assigned, you effectively buy Ross at an adjusted cost (strike minus premium) perhaps in the mid-$120s – which is a favorable entry (near the 200-day MA and long-term support). This is the start of a wheel strategy. Suppose the $130 strike one-month put fetched about $2 premium; if not assigned, that’s ~1.5% return in a month (~18% annualized) with no stock risk unless it dips (za.investing.com) (za.investing.com). If assigned, you own Ross at an effective $128, which is a price many fundamental investors would love.

• Covered Calls (Wheel Strategy – Exit/Income): If you already own ROST shares or get them via put assignment, you can then sell covered calls to generate income while you hold. For instance, with the stock at $135, you might sell a call at $145 strike expiring in a couple of months for, say, $2–$3. If the stock stays below $145, you keep the premium; if it exceeds $145, you’ll sell the shares at $145 (locking in price appreciation from your cost basis, plus keeping the premium). Given Ross’s usually gentle moves, covered calls can enhance yield on this stock, effectively harvesting the time decay. Just beware of selling calls too low and missing out on big rallies; choosing strikes above the resistance (e.g., $150) or short expirations around earnings (when premiums are higher) might make sense.

• Vertical Spreads (Bullish or Bearish): If you have a directional view but want limited risk, vertical spreads are useful. Bull call spread: For example, if you expect Ross to break out above $140 by year-end (perhaps on a strong holiday season), you could buy a $140 call and sell a $150 call (a $10 wide spread) for maybe around $3. If the stock surges to $150+, you’d make $7 profit on $3 cost (133% return), whereas if it languishes, your max loss is the $3 premium. Bear put spread: Conversely, if you worry about short-term downside (say, you think next quarter might disappoint due to tariffs or consumer softness), you could buy a $135 put and sell a $125 put. This would profit if the stock slides towards the mid-$120s. However, given Ross’s overall trend, outright bearish bets are contrarian; one might use put spreads more as a hedge than pure speculation.

• Iron Condor (Range-bound Income Play): An iron condor might suit Ross during periods of consolidation or if you expect it to stay in a range (for instance, between earnings when no big news is anticipated). You might sell a $130 put and $150 call, and simultaneously buy a $120 put and $160 call to cap risk. This structure yields a net credit; you profit if ROST stays between $130 and $150 through the options’ expiration. For example, if you collect $4, the max profit is $4 per contract, and max loss is $6 (if it breaks out past the wings). Given Ross’s recent range roughly fits, an iron condor could generate income if you suspect it will remain stuck around current levels for a couple of months. Keep an eye on earnings dates – you’d avoid selling a condor over an earnings release unless you have a specific volatility view. Ross’s implied volatility tends to jump before earnings, so some traders sell iron condors a few days before earnings to capture premium, expecting the stock won’t blow out beyond certain bounds (though this carries risk if an earnings surprise is big).

• Earnings Play – Straddle/Strangle: If you anticipate a big move on earnings but are unsure of direction (for instance, next quarter they either blow past estimates or warn on consumer weakness), a long straddle (buying at-the-money call and put) or strangle (buying out-of-the-money call and put) could pay off. Historically, Ross’s earnings moves have been significant but not extreme (often 5–10% range, like the 8% pop on Q3’24, 11% drop on Q1’25 guidance withdrawal (www.reuters.com)). The market usually prices in a certain move – if you think the market is underpricing a potential surprise (like maybe the tariff issue could cause an outsized swing), you buy volatility. If implied vol is high, though, this can be expensive; an alternative is a debit spread timed for earnings (like the vertical spreads above, aligning strikes to a predicted move).

In proposing any options strategy, consider risk: off-price retail is not as volatile as tech stocks, but it’s still subject to market swings and event risks. Always position size appropriately. For example, an iron condor could have a high probability of partial profit but a low probability of a large loss if Ross breaks range – one should be comfortable with that worst-case or set stop-loss triggers (perhaps closing if either side of the condor gets threatened).

Specific Recommendation Timing:

• If you’re bullish fundamentally but wary of current price: sell cash-secured puts now at a strike ~5–10% below current price (e.g. $130) to either gain exposure at a discount or pocket premium. This is a conservative way to “get paid to wait” for a dip. Given Ross’s strengths, I view being forced to buy at $130 as actually quite attractive, since that’s ~20x forward earnings for a company likely growing EPS double digits – a good long-term entry.
• If you already hold shares and the stock rallies towards $150 in coming months without a fundamental change, consider writing some covered calls to lock in some gains or at least generate income. Ross’s volatility is moderate, so covered calls won’t yield enormous premiums but can add a few percentage points of return annually.
• If short-term, watch the $140-$145 breakout level: a decisive move above could be chased with a bull call spread (e.g., buy $145 call, sell $155 call) for a quick trade targeting a run to $155+. Put a tight stop if the breakout fails.
• If Ross disappoints in an upcoming earnings and stock drops to support (say $120–$125), that could be an excellent buying opportunity for both long-term investors and as a swing trade (the SWOT analysis suggests Ross often bounces back after weather-related or one-time misses (za.investing.com)). One might even go long the stock there and perhaps sell puts further (double down) if conviction is strong and the market reaction seems overdone.

Conclusion: I am constructively bullish on Ross Stores. The company’s strengths – a differentiated off-price model, disciplined management, and solid financials – position it well to continue delivering shareholder returns. The stock is not undervalued in an absolute sense, but for a high-quality business, paying a fair price is reasonable. Existing shareholders should feel comfortable holding; new investors can initiate positions on weakness. Utilizing options, one can enhance yields or acquire shares at more favorable prices as outlined.

When to Change Stance: If we saw evidence of a fundamental deterioration – for instance, several quarters of comp sales decline indicating weakening customer interest, or margin erosion beyond just freight/wage noise – that would be a warning sign. Also, if a competitor like TJX dramatically outperforms Ross, taking share, or if Ross’s expansion starts cannibalizing sales (saturation), the thesis might need revisiting. So far, none of that is evident; Ross appears to be navigating well. Another flag would be if Ross still refuses any e-commerce presence and the rest of retail fully embraces omni-channel – but given off-price uniqueness, this is a softer concern.

In summary, Ross Stores is a high-quality retailer worthy of a core holding in a portfolio, especially for those seeking exposure to consumer spending trends with a defensive tilt. Its stock should continue to perform as the company executes on its growth plans. By employing smart entry tactics (like the wheel strategy or buying on dips) and possibly supplementing with options for income, an investor can maximize returns while managing risk. My recommendation would be to accumulate ROST on any near-term weakness and consider holding it for the long run, as the off-price retail juggernaut still has plenty of room to run.