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Can You Imagine How Ross Stores' (NASDAQ:ROST) Shareholders Feel About The 82% Share Price Increase?

Simply Wall St
·3 min read

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Ross Stores, Inc. (NASDAQ:ROST) share price is up 82% in the last five years, slightly above the market return. In stark contrast, the stock price has actually fallen 16% in the last year.

Check out our latest analysis for Ross Stores

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Ross Stores managed to grow its earnings per share at 2.3% a year. This EPS growth is lower than the 13% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
earnings-per-share-growth

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Ross Stores' total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Ross Stores shareholders, and that cash payout contributed to why its TSR of 90%, over the last 5 years, is better than the share price return.

A Different Perspective

Ross Stores shareholders are down 15% for the year, but the market itself is up 20%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 14%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Ross Stores better, we need to consider many other factors. For example, we've discovered 3 warning signs for Ross Stores (2 are concerning!) that you should be aware of before investing here.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.