I noticed today that ANYTHING with a store is dropping -- even defensive companies like MCD and yes, ROST.
The stock is already down 40%+, and trades for 14x NTM. Yes those earnings have no been revised down, and they should be. But 14x is a reasonable approximation of the company's undisturbed earnings power.
Now, the next couple of months is going to be horrific. Nobody's going to go out and shop. Comps will be comically bad. In China, SBUX reported -80% comps. I know sportswear retailers that report -90%. They are going to lose a lot of money and be stuck with a lot of excess inventory.
However, in the next few years, assuming quarantine conditions are not going to last years... I have a lot of faith that ROST earnings power is not materially diminished.
1. Their competitors, namely dept stores and mall based retailers, are going to get absolutely hammered and some will go BK. ROSS will gain from them and emerge stronger.
2. ROSS is a defensive retailer. Even if we emerge from the coronavirus into a long term recession, ROSS will be fine. People will trade down to ROSS
3. They have a very clean BS. They can weather the storm.
Maybe you argue that the coronavirus is going to accelerate E-com adoption, and ROSS long term is going to get killed. I think that's a legit fear, but I think you'll get a chance to sell it before that's proven true. I think with the stock down so much, I'll take this "second derivative" risk.
In recent years though, agains the e-com threat, ROSS has done quite well. They are still doing 3% type comps with good margins in the 13% EBIT range. They'll certainly continue to take share against other bricks and mortar players. We all know about these off-priced retailers with their "bargain hunting" model. So far they've proven defensible against e-com and I SUSPECT that will remain true for quite a while longer -- at least much longer than the horizon implied by this thesis.
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