Ross Stores, Inc. (NASDAQ:ROST) operates a chain of off-price retail stores that offer a wide variety of discounted apparel, home decor, and accessories. One of the main reasons why Ross Stores makes a good investment is its business model, which allows the company to consistently offer low prices and attract budget-conscious consumers. The company's off-price model also means that it can purchase excess inventory from other retailers at a discounted price, which helps to increase profit margins. The company could be in a prime position right now to benefit from retailers having too much inventory on hand.
In its most recent fiscal year, for the period ending Jan. 28, the company reported revenue of $18.7 billion which was down modestly from the $18.9 billion the company reported a year earlier. During the fourth quarter, the company's same-store sales were up 1% as the business continued to show resiliency. Ross also saw improvements in profitability, with CEO Barbara Rentler noting that "fourth quarter operating margin was 10.7% compared to 9.8% in 2021. This improvement was mainly driven by lower freight and incentive costs that were partially offset by unfavorable timing of packaway-related expenses."
Since the start of the year, shares of Ross are down 11%, performing worse than the positive 6% returns the S&P 500 has generated thus far. But with the business potentially performing better than other retailers given its focus on value and luring customers in with its treasure-hunt experience, Ross could be an underrated buy on the dip. Currently it's trading at 24 times earnings but with profitability likely to improve as supply chain issues continue to ease, this can make for a great buy right now.
