Ross Stores a Pre-earnings Buy with this Specific Strategy?

Key Points

• Shares of Ross Stores have been among the best-performing in the entire retail industry.
• With earnings due next week, the stock is continuing to rally to fresh highs. 
• All the signs point to this rally continuing, but it’s not without its risks.

While our readers will be well used to hearing how the hottest tech stocks are back trading at all-time highs, there are few stocks from the more traditional industries doing the same thing. Take retail, for example; Ralph Lauren Co. NYSE: RL is having a great run but has yet to top 2013’s record close, while shares of middle-America’s favorite Nordstrom, Inc NYSE: JWN are currently trading at 1998 levels. 

However, for the past decade, one retailer has shone above nearly all others and has managed to outperform its peers during periods of boom and bust. Ross Stores, Inc. NASDAQ: ROST, the discount retailer, was among the first stocks to start rallying after 2022’s crash. Since July of that year, they’ve tacked on almost 120% and have been setting fresh all-time highs since last December. 

With them continuing to power higher, you’d be forgiven for wondering if perhaps you’ve missed the boat and most of the good gains are gone. Fear not, however, and remember that when a stock is at an all-time high, it’s far more likely to continue setting more all-time highs than not. 

Bullish comments

This was something the team at UBS picked up last week when they upped their rating on Ross Stores ahead of the company’s earnings report, which is due next week. They’re looking for Ross to deliver a solid beat on analyst expectations and to provide bullish guidance on the year ahead. 

It’s a brave step to upgrade stock ahead of its earnings, as results tend to be viewed as quite binary; either they were very good and the stock rallied, or they weren’t very good, and the stock fell. However, looking at the current momentum in Ross’ shares, you have to think they’re onto something. Even with the benchmark S&P 500 cooling somewhat this week since last Friday’s record print, shares of Ross closed at a record high on Tuesday and were on track to do the same on Wednesday. 

Sometimes, you just should not fight the trend, and based on Ross’ track record of delivering strong earnings, this is one of those times. MarketBeat has them ranked as a Moderate Buy, helped no doubt by the bullish stance also taken by the Evercore team last week. They reiterated their Outperform rating on Ross shares while boosting their price target to $165. Considering shares are currently trading at record highs at $150, this was an incredibly bullish stance to take and bodes well for those of us thinking about getting involved. 

Getting involved

At the same time, the opportunity here does require some caution and strategic thinking, and if you’re only starting to build a position now, it might be an idea not to go all-in the week before earnings. This is a move that can pay off, as seen with NVIDIA Corp NASDAQ: NVDA last week, but your risk appetite has to be nearly insatiable to do that, and it’s hardly going to be a winning longer-term strategy. Ross’ relative strength index (RSI) is at 77, pointing to overbought conditions, and a red-h to extremely ovate report will be needed next week to justify all the recent gains.

One strategy may be to start picking up some Ross shares as they print fresh highs and look for more opportunities after the earnings. If they’re great, and the stock rallies, you get to add to your position with even more confidence in the stock’s potential, while if they’re softer than expected and the stock falls, you get to lower your average cost in what will still be a great company to own.