What happened
One trading day after off-price retailer Ross Stores (ROST 0.32%) plunged on earnings, the stock was rallying as investors seemed to spy a buying opportunity in the midst of braoder market gains.
The stock closed the day up 9.6% after a 22.5% loss on Friday.
Image source: Getty Images.
So what
A Barron's article over the weekend argued that off-price retail stocks look like a bargain after last week's slide, especially since they are well positioned in a slowing economy compared to peers like department stores as consumers tend to shop at off-price chains to save money. The writer, Teresa Rivas, argued that off-price chains could seize the opportunity to grab market share.
Also this morning, Barclays analyst Adrienne Yih lowered her price target on Ross from $119 to $85, but maintained an overweight rating, a sign she sees the disappointing first-quarter report as a speed bump, rather than something that could derail the company.
Up against difficult comparisons with the year-ago quarter when Americans received stimulus checks, Ross reported a decline in comparable sales of 7%, following a 13% gain in the year-ago quarter; earnings per share (EPS) fell from $1.34 to $0.97.
Management cut its full-year EPS guidance to $4.34-$4.58 and forecast a comparable sales decline of 2% to 4%.
Now what
Based on the EPS guidance, Ross trades at price-to-earnings ratio of 18, which looks like a decent price for a stock that's been a long-term winner, up more than 14,000% since its IPO in 1985.
While 2022 is shaping up to be a tough year, the off-price model has been highly successful historically, and puts the company in a position to outperform during an economic downturn.
