Ross Stores, Inc. (ROST), Wal-Mart Stores, Inc. (WMT): Can This Retailer Keep Rising in 2013?

The Foolish Fundamentals

On a fundamental basis, how does Ross fare against TJX, Target and Wal-Mart?

Source: Yahoo Finance, 3/8/2013

While superstores Target and Wal-Mart Stores, Inc. (NYSE:WMT) are more fundamentally undervalued, Ross and TJX have performed far better in the past, as evidenced by their return on equity ratios. Ross also has the strongest margins of the bunch, as a result of its aforementioned “packaway” strategy of controlling costs. Ross’ low debt levels will make its ambitious expansion plans over the next decade an achievable goal.

However, once we look at Ross’ top and bottom line growth over the past five years, the long term strength of this stock becomes glaringly evident.

ROST data by YCharts

Revenue grew 52.89% and earnings rose 227.7% during this period, outperforming all three competitors. Looking ahead, analysts expect Ross to grow its earnings 23% for fiscal 2013. In 2014, earnings growth is expected to slow slightly to 11%.

Earnings growth outpacing revenue growth is a clear indicator of improving margins, which are confirmed in this last chart.

ROST Operating Margin TTM data by YCharts

The Foolish Bottom Line

Ross’ strategy is as simple as its tagline, “Dress of Less.” Even in leaner times, Americans still love brand name items, and that constant fact will drive the company’s long-term growth. Even though the payroll tax may cause a decline in lower-income shoppers, most analysts believe that middle and upper middle class shoppers will replace those lost customers as those dreaded reductions to discretionary income kick in. Although the company is about to hit a few speed bumps in 2013, its long-term growth is still intact – making it a solid, safe investment for the more conservative growth investor.

The article Can This Retailer Keep Rising in 2013? originally appeared on Fool.com.

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