Buy Those Designer Clothes Cheap And Make Money While Doing it

Ross Stores, Inc. [NASDAQ: ROST] operates a chain of off-price retail apparel and home accessories stores that target value-conscious consumers between the ages of 25 and 54, primarily in middle-income households. The Company offers brand name and designer merchandise at low prices, generally 20% to 60% below regular prices of most department and specialty stores. The company has more than 500 stores in 23 states, with 55 new stores opening last year. Ross Stores' growth has been so notable that it was recently added to the Nasdaq-100. It ha sgrown earnings and revenues at a rate of 11% and 12% respectively for the past 3 years. It spots a TTM Return on Equity of 34% and has enough cash to pay its debt--$102 million in cash. It's debt it minute (4% LTD to Capital ratio), and though its profit margin of 5.6% is not the size I like for small companies, it's still much better than most of its peers.


At its current price of $34.27, it sells for less than 40% discount to its value based on a FCF of $144,297,000 and a deffered long term debt of $48,682,000.
I estimate in can grow 13% in the next 5 years and 10% in year 6-10, with a terminal growth rate of 5% and a discount rate of 11%. That puts its value at about $53.
That's a buy in my book. It also spots a low P.E of 14.48, lower than most of its peers and a P/S ratio less than 1.


With that, you can get your clothes from Ross, and put the savings into buying Ross shares. Both ways, you stand to gain.




sheguno@yahoo.com
Insights

[2/26/2003]

Quick Note on Home Depot

On Tuesday, Home Depot (NYSE: HD) delivered year-end 4th quarter results for a very dismal year in which it has seen comps drop and its rival Lowes creeping up.

Sales slipped 2% to $13.2 billion, along with a 6% drop in comparable same store sales. Using a 13-week basis for comparison (2001's Q4 had 14 weeks, while this year's only had 13), sales were actually up increasing 9% to $58.2 billion.
The company beat market expectations for comp sales after warning earlier that comps could fall by as much as 10%.
Yearly earnings came in at $3.66 billion, 20% ahead of 2001's results, but the company experienced a drop in quaterly earnings. Earning per share was $0.30 in Q4, three cents better than analysts had expected.

I should note here that there is a psychological trap that investores fall into, and that is, to prove ourselves right by sticking to earlier investment assumptions and placing greater emphasis on information that make us feel we made the right decision. That is not what is going on in the case of HD. The results above were expected and the story is in what happens from here, which I still believe will be very favorable for long term holders of Home Depot.

[2/21/2003 1:22:42 PM | Shegun Otulana]

What's To Love About Home Depot

There is a lot not to love about Home Depot(NYSE: HD) right now, especially if you had put your hard earned money into it over the last year.
America's favorite store, with its ubiquitous orange boxes, has seen its stock price dwindle from $70 in 2000 to a current level of $21.90, just above its five-year low. All this while America experienced its biggest housing boom in a while.
The cause of the great fall: The once high flying company has had its share of new management adjustments and customer complaints in recent times. It also had a dismal fourth quarter, with EPS down an estimated 10%, along with drop in same-store sales. Add to this, the fact that Home Depot reduced its guidance for 2003 to 9% to 12% sales growth and 9% to 14% EPS growth, which is way below the previous 15% to 20% earlier projections.
These events have forced buyers of the company who were in it for the quick growth to jump ship--and that was most.

So what's to love then?
Well, I believe Home Depot's current troubles are temporary. New management is beginning to get a feel of things and readjusting, the company continues to generate high returns on equity, and a huge amount of free cash. Operating cash flow for the 12 months ending in Q3 was $6.4 billion. The company has also bought back over $1 billion of stock--which means management still strongly believes in their ability to deliver, and it has built its cash to $4 billion with only $1.3 billion of debt.

In summary, Home Depot is here to stay, and though it may not grow as fast as it grew before the incursion of Lowe's, the company is still experincing great growth and will deliver superior returns to its shareholders. In the long run, the value of the company and its stock price will have to converge, and with the high growth seekers out of the picture, I believe its volatility--and thus, the rate at which your stomach churns--will reduce.

Desert: Homo Moronicus

O.O
Insights

Websense (NASDAQ: WBSN) suffered a beating on January 31, dropping a whooping 25% in market value. I see no reason for the drop other than an overreaction by the market. The only good news I see out of that is that it brings Websense's valuation more in line.
Websense's results were actually fine, no matter how one looks at it, especially given then difficult market environment.

Now the reason for the drop: The market was surprised by the end of Websense's tax-loss carryforwards and the company also announced it expects to earn $0.13-$0.14 per share in its first quarter. Analysts were expecting $0.14. I should warn here though for anyone interested in Websense, that while in my view it remains a worthy buy, any buyer should have their mind set on the long term and also expect a fair bit of volatility.

Websense's Results:

• Revenues for Q4 rose 54% to $17.4, while yearly revenues jumped a full 70% to $61 million.

• Net income increased to $6.5 million for the quarter from $1.6 million in Q4 previous year.

Websense has no debt and generates lots of cash and with a net profit margin of 27% and ROE of 4.4%--small but way above its peers, it looks good to me.

Next up...What do I see when I see Home Depot.

sheguno@yahoo.com