Ross Stores Stock Down 6% Today – Time to Buy ROST Stock?

The price of Ross Stores stock is down 6% today in pre-market stock trading action following the release of the firm’s financial results covering the third quarter of the 2021 fiscal year after it shared below-expected guidance for its bottom-line profitability for the upcoming fourth quarter.

For the three months ended on 30 October, the California-based discount retailer reported total sales of $4.57 billion resulting in a 22% year-on-year jump while exceeding Wall Street’s estimates of $4.35 billion for the quarter.

Gross margins decreased slightly compared to the same period a year ago as they landed at 27.3% compared to 27.7% the company reported during Q3 2020 while net earnings went up three-fold at $385 million compared to $131.2 million the company brought a year ago.

However, the management cited that operating margins suffered amid the presence of multiple headwinds including higher payroll and freight costs.

Nonetheless, the company managed to beat the market’s expectations for its bottom-line profitability as it reported earnings per share of $1.09 compared to $0.80 analysts were expecting for the quarter.

For the upcoming fourth quarter of the year, the management expects a decline in its EPS as the figure is expected to land in a range between $0.83 to $0.93 per share compared to $1.01 the market had estimated for the period. This is probably the reason why Ross Stores stock is dropping before the opening bell.

What can be expected from ROST stock as we move closer to the end of 2021? In this article, I’ll be assessing the price action and fundamentals of this retail stock to outline plausible scenarios for the future.

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Ross Stores Stock – Technical Analysis

Shares of Ross stores have been steadily declining since they reached their 52-week high of $134.22 per share back in early May with the price currently standing 11% below that mark based on yesterday’s closing and much lower based on today’s pre-market price.

Concerns about higher logistic costs resulting from the current supply chain crisis and their potential impact on the firm’s profit-generation capacity in the near future appear to be weighing in the outlook for ROST stock at the moment.

These concerns were validated today as the company missed analysts’ guidance for the fourth quarter of the year – possibly as the management expects to struggle to keep stores properly stocked up at a time when shipping volumes will experience a surge due to the holidays.

Today’s pre-market decline is pushing the price near the stock’s 50-day moving average while it will also result in a rejection of the 200-day simple moving average.

The presence of a descending triangle formation shows that market participants are reluctant to push the price higher amid these current headwinds and that could weigh on the short-term outlook for Ross Stores stock.

Moving forward, the price gap highlighted in the chart remains the most important support area to watch. It would be plausible to expect that the price could head down to the low 90s to fill that open gap to then progressively advance since even though the company is suffering to some extent from these current headwinds, its fundamental situation has not changed to an extent that may justify the beginning of a downtrend.

Ross Stores Stock – Fundamental Analysis

Before the pandemic stroked, sales of Ross were steadily advancing at a rate of around 7% to 10% per year amid the success of its business model. Gross margins had stood for years at around 32% but they have been suffering lately amid the impact that the pandemic has had on the company’s supply chain.

Moreover, inflationary pressures could be weighing on Ross’s financial performance as well as the company has limited pricing capacity.

At the current pre-market price of $114.45 per share, the stock is trading at 24 times its forecasted earnings for the 2021 fiscal year. This valuation, compared to the firm’s forecasted earnings growth of around 15% per year for the next two years, indicates that Ross Stores stock is trading close to its fair value.

However, the presence of multiple headwinds and their potential to outlive the pandemic is a risk for investors as a progressive deterioration of the firm’s profit-generation capacity could create room for further declines in the stock price.

Overall, the outlook for Ross Stores stock is neutral until the company’s outlook becomes clearer in the midst of this seemingly challenging environment.

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