Should Value Investors Consider Ross Stores (ROST) Stock?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Ross Stores (NASDAQ:ROST), Inc. ROST stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Ross Stores has a trailing twelve months PE ratio of 22.1, as you can see in the chart below:

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This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 24.27. If we focus on the long-term PE trend, Ross Stores’ current PE level puts it below its midpoint over the past five years.

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Further, the stock’s PE compares favorably with the Zacks Retail-Wholesale sector’s trailing twelve months PE ratio, which stands at 28.6. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

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We should also point out that Ross Stores has a forward PE ratio (price relative to this year’s earnings) of just 21.3, so it is fair to say that a slightly more value-oriented path may be ahead for Ross Stores stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Ross Stores has a P/S ratio of about 1.93. This is lower than the S&P 500 average, which comes in at 5.04 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.

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If anything, ROST is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate,Ross Stores currently has a Zacks Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Ross Stores a solid choice for value investors.

What About the Stock Overall?

Though Ross Stores might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of F and a Momentum Score of C. This gives ROST a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been disappointing. The current year has seen five estimates go higher in the past sixty days compared to three lower, while the full year 2021 estimate has seen three upward revision compared to one downward in the same time period.

This has had a negative impact on the consensus estimate though as the current year consensus estimate has fallen by 19.7% in the past two months, while the full year 2021 estimate has declined by 1.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Ross Stores, Inc. Price and Consensus

Ross Stores, Inc. Price and Consensus

Ross Stores, Inc. price-consensus-chart | Ross Stores, Inc. Quote

Despite the bearish analyst sentiments, the stock holds a Zacks Rank #3 (Hold). Thus, we are looking for in-line performance from the company in the near term.

Bottom Line

Ross Stores is an inspired choice for value investors, as it is hard to beat its incredible line up of statistics on this front. In fact, over the past two years, the Zacks Retail - Discount Stores industry has clearly outperformed the market at large, as you can see below:

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However, with a sluggish industry rank (among bottom 22% of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall.

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

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