Stock Analysis on Net
Stock Analysis on Net

Ross Stores Inc. (NASDAQ:ROST)

This company has been moved to the archive! The financial data has not been updated since December 7, 2022.

Dividend Discount Model (DDM)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

Intrinsic Stock Value (Valuation Summary)

Ross Stores Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 14.15%
0 DPS01 1.14
1 DPS1 1.57 = 1.14 × (1 + 38.11%) 1.38
2 DPS2 2.08 = 1.57 × (1 + 31.84%) 1.59
3 DPS3 2.61 = 2.08 × (1 + 25.57%) 1.75
4 DPS4 3.11 = 2.61 × (1 + 19.30%) 1.83
5 DPS5 3.52 = 3.11 × (1 + 13.03%) 1.81
5 Terminal value (TV5) 355.72 = 3.52 × (1 + 13.03%) ÷ (14.15% – 13.03%) 183.53
Intrinsic value of Ross Stores Inc. common stock (per share) $191.90
Current share price $115.36

Based on: 10-K (reporting date: 2022-01-29).

1 DPS0 = Sum of the last year dividends per share of Ross Stores Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.81%
Expected rate of return on market portfolio2 E(RM) 13.55%
Systematic risk of Ross Stores Inc. common stock βROST 1.07
 
Required rate of return on Ross Stores Inc. common stock3 rROST 14.15%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rROST = RF + βROST [E(RM) – RF]
= 4.81% + 1.07 [13.55% – 4.81%]
= 14.15%

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Ross Stores Inc., PRAT model

Microsoft Excel
Average Jan 29, 2022 Jan 30, 2021 Feb 1, 2020 Feb 2, 2019 Feb 3, 2018 Jan 28, 2017
Selected Financial Data (US$ in thousands)
Dividends declared 405,123 101,404 369,793 337,189 247,526 214,640
Net earnings 1,722,589 85,382 1,660,928 1,587,457 1,362,753 1,117,654
Sales 18,916,244 12,531,565 16,039,073 14,983,541 14,134,732 12,866,757
Total assets 13,640,256 12,717,867 9,348,367 6,073,691 5,722,051 5,309,351
Stockholders’ equity 4,060,050 3,290,640 3,359,249 3,305,746 3,049,308 2,748,017
Financial Ratios
Retention rate1 0.76 -0.19 0.78 0.79 0.82 0.81
Profit margin2 9.11% 0.68% 10.36% 10.59% 9.64% 8.69%
Asset turnover3 1.39 0.99 1.72 2.47 2.47 2.42
Financial leverage4 3.36 3.86 2.78 1.84 1.88 1.93
Averages
Retention rate 0.79
Profit margin 9.68%
Asset turnover 1.91
Financial leverage 2.61
 
Dividend growth rate (g)5 38.11%

Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).

2022 Calculations

1 Retention rate = (Net earnings – Dividends declared) ÷ Net earnings
= (1,722,589 – 405,123) ÷ 1,722,589
= 0.76

2 Profit margin = 100 × Net earnings ÷ Sales
= 100 × 1,722,589 ÷ 18,916,244
= 9.11%

3 Asset turnover = Sales ÷ Total assets
= 18,916,244 ÷ 13,640,256
= 1.39

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 13,640,256 ÷ 4,060,050
= 3.36

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.79 × 9.68% × 1.91 × 2.61
= 38.11%

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × r – D0) ÷ (P0 + D0)
= 100 × ($115.36 × 14.15% – $1.14) ÷ ($115.36 + $1.14)
= 13.03%

where:
P0 = current price of share of Ross Stores Inc. common stock
D0 = the last year dividends per share of Ross Stores Inc. common stock
r = required rate of return on Ross Stores Inc. common stock

Dividend growth rate (g) forecast

Ross Stores Inc., H-model

Microsoft Excel
Year Value gt
1 g1 38.11%
2 g2 31.84%
3 g3 25.57%
4 g4 19.30%
5 and thereafter g5 13.03%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 38.11% + (13.03% – 38.11%) × (2 – 1) ÷ (5 – 1)
= 31.84%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 38.11% + (13.03% – 38.11%) × (3 – 1) ÷ (5 – 1)
= 25.57%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 38.11% + (13.03% – 38.11%) × (4 – 1) ÷ (5 – 1)
= 19.30%