Ross Stores Inc (ROST)

Conclusion

Ross Stores operates off-price apparel and home fashion stores in the United States under the Ross Dress for Less and dd's DISCOUNTS brands. At a price of 237 USD on 9 November 2026, the company has a market capitalisation of 76.0 billion USD.

The verdict is overvalued. The price-to-earnings ratio of 28.6x is above its ten-year median of 22.6x, and the EV-to-EBITDA ratio of 19.3x is above its median of 13.7x. The discounted cash flow gives 190.03 USD per share, and the fair value band runs from 151.03 to 226.55 USD with a midpoint of 188.79 USD, a margin of safety of -20.3% at the current price. The reverse DCF implies growth of 11.0% a year, while revenue grew 12.7% a year over five years and free cash flow per share grew 5.7% a year over the same period.

What holds the case up is a return on invested capital of 36.0% against a weighted average cost of capital of 8.8%, a free cash flow conversion of 104.9% over the last twelve months, and interest coverage of 57.4x with net debt at 0.11 times EBITDA. What would break it is the price-to-sales ratio of 3.10x against a median of 2.05x, the EV-to-EBITDA premium of 40.2% over its history, and five-year free cash flow per share growth of 5.7%, which falls short of the 11.0% the price implies.

Financial health

Financial strength is green, held up by four good readings: a current ratio of 1.61, net debt of 0.11 times EBITDA, a debt-to-equity ratio of 0.70 and interest coverage of 57.4x. The quick ratio of 0.93 is lower but not assessed as weak. The Altman Z-score is 7.87, in the safe zone, although the model was designed for manufacturers and Ross is a retailer, so the reading is indicative. Insolvency risk: low, about 0.4% by the estimate of the Ohlson model over one to two years, based on figures as of 31 January 2026.

Earnings quality

Earnings quality is green, supported by a free cash flow conversion of 104.9% over the last twelve months and 83.6% over five years, and a Piotroski score of 7 out of 9. The accrual ratio is -5.8%, which means cash earnings exceed reported earnings. Stock-based compensation is 0.8% of revenue, and free cash flow after it is 2.59 billion USD. The share count has fallen 1.9% a year over five years, which points to buybacks. The Beneish M-score is not available. The company beat earnings estimates in seven of the last eight quarters, with an average surprise of 6.5%. Analysts raised the current-year estimate by 12.4% over 90 days, with three upward revisions and none downward in the last 30 days.

Profitability

Profitability is green, with three good readings out of four. The gross margin of 29.9% is above its ten-year median of 27.9%, the operating margin of 13.8% is above 12.3%, and the net margin of 10.9% is above 9.3%. The operating margin is rated neutral in absolute terms. Return on invested capital is 36.0% against a weighted average cost of capital of 8.8%, a difference of 27.2% as reported. The five-year median return on invested capital is 33.0%. Return on equity is 39.4%, but the DuPont split shows a net margin of 9.4%, an asset turnover of 1.46x and an equity multiplier of 2.51x, so part of the return comes from leverage.

Growth

Growth is green, with four good readings. Revenue compounded at 6.8% over three years, 12.7% over five years and 6.7% over ten years. Earnings per share compounded at 14.9% over three years, 94.2% over five years and 10.2% over ten years. Free cash flow per share compounded at 31.6% over three years, 5.7% over five years and 11.2% over ten years. Revenue grew in 8 of the 10 comparable years. The next-year earnings estimate implies growth of 9.9%. The five-year figures differ widely, so the three-year and ten-year rates give a steadier picture.

Valuation

Valuation is red, with the verdict of overvalued driving the colour and the margin of safety at -20.3%. Against their ten-year medians, the price-to-earnings ratio of 28.6x carries a premium of 26.4%, EV-to-EBITDA of 19.3x a premium of 40.2%, price-to-free-cash-flow of 27.2x a premium of 10.5%, price-to-sales of 3.10x a premium of 51.5%, and price-to-book of 11.3x a premium of 18.3%. The discounted cash flow uses a discount rate of 9.11% and gives 190.03 USD per share, with 57.7% of its value in the terminal period. The fair value from historical multiples is 187.56 USD. The reverse DCF implies growth of 11.0%, against revenue growth of 12.7% and free cash flow per share growth of 5.7% over five years. The fair value is an order of magnitude built on fixed assumptions, not a price target. The dividend yield is 0.7%, with a payout of 19.7% of free cash flow.

Risks

The main risk is valuation: if growth slows toward the five-year free cash flow per share rate of 5.7%, the 11.0% growth the price implies would not be delivered, and the premiums on price-to-sales and EV-to-EBITDA would be harder to justify. A fall in the return on invested capital from 36.0% would narrow its 27.2% gap over the cost of capital. The Beneish M-score is not available, so the risk of earnings manipulation cannot be assessed from this data. This analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the performance of individual brands cannot be judged. The Altman Z-score is an imperfect guide for a retailer.