A recent player that's looking increasingly like a candidate for a “buy the dip” strategy play is Ross Stores (NASDAQ:ROST). Ross Stores took a hit on its recent earnings report for being below what the analysts were hoping for, but despite this, has quite a bit of positive action on its side that should make investors pay closer attention to this often-overlooked stock.
Disappointing Numbers, But Who's Actually Disappointed?
Ross Stores came out with numbers that didn't exactly live up to expectations; in fact, the numbers missed expectations by a fairly healthy margin, on a percentage basis. The company posted earnings of $0.67 per share against a consensus expectation of $1 per share. That's bad news by itself and it actually gets worse when compared against the earnings per share numbers from the fourth quarter of 2019, which came in at $1.28 per share.
Revenue had a similar miss, coming in at $4.25 billion for the quarter. The miss was by a much closer margin, however, as the expected revenue was just 0.98% higher than what was turned in, according to reports. It's also a poor comparison against the fourth quarter of 2019, when the numbers came in at $4.41 billion. Fractional misses, yes, but when we're talking about fractions of a billion, fairly sizable in the gross number sense.
The biggest problem for Ross, reports note, is the ongoing retail restrictions in California. With 1,869 stores operating across 40 states, it may seem odd that the California restrictions are doing the most damage to Ross. A look at the numbers does suggest that, had California been fully operational, Ross might well have turned in earnings and revenue beats both on this quarter and against estimates.
Still Worth Buying In
While the analysts may have been disappointed in Ross' performance this quarter, the word from the broader analyst pool—based on our latest research—is still very much a buy. Very much; the ratings are actually higher than they've been in the last six months, though they may have plateaued based on the latest figures.
Six months ago, the company had one “sell” rating, five “hold” and 19 “buy” to its credit, and that's actually the most bearish sentiment the company has seen in the last half a year. Three months ago, the ratings shifted to one “sell” rating, four “hold” and 20 “buy.” A month ago, the sell rating departed the field altogether, leaving us with four “hold” and 19 “buy.” This is where we are today.
The price target, meanwhile, has slipped a bit off its highs of three months ago. Six months ago, the company was at $107.08 per share for a target, and three months ago, it was $113.25. A month ago, that slipped just a bit to $113.09, where it remains today. Given that Ross shares currently sell at $113.86, there's a slight downside potential to the stock right now. However, there's also the matter of stale price targets to consider. So far, there have been three adjustments to the price target this year; all three were revised upward, and all three were already above the current aggregate price target.
There's Always Room for Discount Retail
While certainly, this quarter wasn't the greatest for Ross, we have to remember that this quarter was still neck-deep in pandemic restrictions on several fronts. Sure, those are retracting—just look at Texas—but they're still in play on one level or another across the 40 states where Ross operates. If it can get as close as it did to both current estimates and the preceding year's figures with coronavirus restrictions in place, that's a great sign. Imagine what the numbers would look like if all those training wheels were finally off.
The truly great thing about discount retail is its remarkable resistance to recession. After the last several years of economic expansion, we're likely in line for a recession before too much longer, and discount retail offers a way to access goods, services, and psychologically-beneficial retail therapy despite the conditions on the ground. All it should take to get Ross back in the pink is further reduction in restrictions—particularly in California—or an economic downturn, and both look likely. Sure, Ross will have some stiff competition from names like Walmart (NYSE:WMT) and Target (NYSE:TGT), but it's already managed to do this well with these competitors in play; assuming it can continue is not out of line.
Ross Stores, as it sits, is on the razor's edge of improvement. With that in mind it's little wonder that the analyst pool is in such strong favor of buying in; all it will take is just a little shift in the economics to likely push Ross into even better results than before. The best part is, all of these conditions are likely to happen to one degree or another, which improves the chances that Ross' share price will improve in the near term.
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