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As Ross Stores Falls Into Unprofitability – Is Now The Perfect Time To Buy?

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

This is a huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

But most only think of investing well. 

Today, I want answer… As Ross Stores Falls Into Unprofitability – Is Now The Perfect Time To Buy?

1 Reason To Avoid Ross Stores

  1. It’s Enormously Overvalued

Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.

But frankly none of those matter much with Ross Stores (ROST) due to its huge valuation.

Ross Stores is an “off price” discount home fashion and clothing retailer with more than 1,800 stores nationwide as of the end of 2019.

And over the last decade, its seen large increases in both revenue and profits… At least until Covid.

Revenue grew 62% from $7.9 billion in 2011 to $12.8 billion in the trailing twelve months (TTM) period.

EDITORS NOTE – TTM is simply the last 12 months of financial results consecutively.

In 2019 it had revenues even higher at $16 billion.

Operating profits rose 143% from $907 million in 2011 to $2.2 billion as of the end of 2019.

This fantastic growth in revenues and profits helped skyrocket its shares in this time.

From $14.81 per share at the end of 2010 to $115.24 per share as of this writing.

This is an increase of 610.5% in the last decade.

You’re doing well if you earn 10% investment returns per year on the stocks you own.  Ross Stores produced investment returns of 61.1% per year on average over the last decade.

But this growth in revenues and profits has now slowed down massively due to the coronavirus.

So much so, that in the first 9 months of 2020 it lost $152.6 million in net profit… While during the first 9 months of 2020 it earned a positive $1.2 billion in net profit.

And with no end still in sight to the pandemic as of this writing this will continue hurting Ross Stores for a while.

But there’s a bigger reason you need to avoid it stock now that adds even more risk…

It’s massively overvalued.

Its P/E is 135.6.

Its P/CF is 16.

Its forward P/E is 24.2.

And its enterprise value to operating income – EV/EBIT is 111.4.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

These show Ross Stores is overvalued by a large amount right now.

And this means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

With Ross Stores being overvalued it makes the investment riskier.  Especially with the still ongoing pandemic negatively affecting sales and profits.

For the reason of its overvaluation, I recommend you avoid its stock right now.

Plus, there’s safer, cheaper, and higher return stocks you can buy now that I’ve already written about.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above

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