Ross Stores, Inc. (ROST)

Total return at 5 years: 2.0%/year = 1.0% appreciation + 1.0% dividend. The target price ($237) is ex-dividend; the $12 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($226) and the other below.

Today — expensive, no margin of safety: at $226 trades ~12.8% above its value discounted to today (~$200); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($237) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$125.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($226) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (5.4%/year) is in line with our base case (6.5%/year) → the price is consistent with the projection.

That growth implies ~$3.2 bn of owner earnings in year 5 (vs ~$3.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Single-business discount retail operation (Ross Dress for Less + dd's DISCOUNTS, with no separately reported segments). Valued at the enterprise level on EV/EBIT over operating income, with excess cash and debt entering through the enterprise-to-equity bridge (cash and equivalents of $4,288 million against total debt of $1,019 million as of Aug 1, 2026, i.e. net cash). The base year corresponds to the twelve months ended Aug 1, 2026 and is normalized: the second quarter includes $253 million of IEEPA tariff refunds that the company itself isolates (405 of the 610 basis points of quarterly operating-margin improvement), and that money does not recur. Excluding it, trailing-twelve-month operating margin goes from 13.75% to 12.72% and the operating cash flow margin from 14.94% to 13.90%. Year 1 is anchored to current guidance rather than to the trailing trajectory: the company projects same-store sales of +6% to +7% in the third quarter and +4% to +5% in the fourth, with fiscal 2026 earnings per share of $8.61 to $8.77 (including the $0.60 tariff impact). Built by levels, the following twelve-month window grows +8.4% over its guided half and decelerates in the second, which laps quarters of +20.6% and +13.3%; hence the base case's +7.3%, below the trailing-twelve-month +14.0%. The base year's operating cash flow margin reflects inventory build for the 115 openings planned for 2026 and the window closing at the seasonal peak, and the path recovers it toward its usual relationship with operating income. The revealed net buyback (~1.7% annually: 322.3 million shares as of Jan 31, 2026 against 319.7 million as of Aug 1, 2026) is modeled with a declining share count path, identical across the three scenarios, and not with cash accumulation.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $237 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $226, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $237 in 5 years plus $12 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $200. Against the current market price ($226), the margin of safety is -12.8% (trades above the maximum → a premium is paid) and the total return at that price would be 2.0% annually.

• Current multiple elevated. Current price implies 22× trailing operating income, well above the terminal reference band (12-17×).
• Negative expected return in base case. Five-year value under realistic assumptions falls below current price, even including dividend.
• Favorable scenario requires structural acceleration. Only with sustained consumer migration toward off-price does current price find support.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (103%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital well above the bar. Return on invested capital is widely above the 10% reference level, supported by consistent cash generation.
• Solid cash conversion. Operating cash flow amply covers expansion capex and capital returns to shareholders.
• Margins under tariff pressure. Operating margin remains stable around 12%, but absorbs tariff cost acknowledged by the company itself.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Ross growth breaks down into store volume (net guidance of ~110 locations for 2026, +5% in units) and comparable sales (average ticket × traffic): in fiscal 2025 comparables grew 5%, with 3 points from average ticket and 2 points from traffic. The combination of both drivers explains the 7.7% revenue growth in fiscal 2025.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (1-ago-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent acceleration. Trailing-twelve-month revenue grew 14.0%, well above the trend of the prior years.
• Lumpy trajectory. Annual growth ranged between 3.7% and 14.0% over the last four periods, which requires anchoring the base to guidance rather than to the most recent data point.
• Guided store expansion. The company guides to 115 openings for fiscal 2026, sustaining volume-driven growth.

• Proven off-price model. Opportunistic sourcing without onerous supplier terms, with more than 800 combined buyers across both brands.
• Geographic concentration. California, Texas and Florida cluster nearly half of all stores; California alone holds ~22% and significant distribution capacity.
• China sourcing dependence. More than half of merchandise sold originates in China, with direct exposure to tariff policy.
• No material e-commerce channel. Company operates exclusively in physical stores, leaving upside unexploited but reducing operational complexity.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $3.3 bn
• ✓Interest coverage (EBIT / interest)63.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 103% of ROIC
• ✓Value creation (ROIC − 10% bar)+58pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.6x
• ✓Float / working capitalFrees up cash $0.1 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Positive net cash. Cash and equivalents of $4,288 million against total debt of $1,019 million.
• Ample interest coverage. Interest expense on long-term debt (~$49 million annually) is a minimal fraction of operating income.
• No near-term refinancing need. Company repaid $700 million of senior notes in 2025 without refinancing with material new debt.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• New CEO. James Conroy took over in 2025 with 12 years leading Boot Barn; solid track record but brief tenure at the company.
• Low insider ownership. Director and executive group holds just ~2.1% of outstanding shares.
• Consistent capital allocation. Sustained buyback (~45% of capital deployed) and growing dividend (~9% annually) funded entirely from operating cash.

• Market rewards the structural off-price migration narrative: in a pressured consumer environment, off-price retailers gain share from full-price channels, and current price already reflects that expectation.
• Recent execution comfortably exceeded the historical trajectory (same-store sales +10% in the second quarter, trailing-twelve-month revenue +14.0%), which sustains the market's confidence in the continuity of the momentum.
• Balance sheet with no net leverage and sustained buyback reduce perceived risk, which also supports a multiple more generous than the company's historical average.

No clear source of discount (missing buyers or motivated sellers) is identified: rather, current price (22× operating income) reflects consolidated market optimism, not a perception-reality gap favoring the buyer. Q1 FY2026 results, reported May 21, 2026, are already incorporated in trailing twelve-month data used in this analysis; no explicit FY2026 revenue or earnings-per-share guidance was identified beyond guided store openings and projected capex.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -4%/year (-20% total): the margin of safety protects the downside. The bull (+6%/year, +37% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Tariff. More than half of merchandise originates in China; unfavorable impact already cost ~$0.16 per share in fiscal 2025.
• Competitive. Limited barriers to entry in the off-price format, acknowledged by the company, in a growing competitive environment.
• Geographic. Nearly half of all stores and significant distribution capacity are concentrated in three states, with natural disaster exposure.
• Valuation. Current price already discounts execution superior to historical trends, leaving minimal margin for any misstep.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 68% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 3.4 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 68% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 5%, in line with our 6%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -6%/yr, bull-scenario ceiling +6%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 5%, within what we project (6%) — the story squares with the numbers.