Avoid This Overpriced Stock, Especially If You’re Worried About Inflation

Ross Stores has been on a tear: The stock is up more than 60% during the past year. This wide-moat retailer’s off-price model has taken market share from mainstream department stores as new social media campaigns and in-store initiatives, like self-checkout pilots, are driving robust customer engagement. But we think this overvalued stock has gotten ahead of itself, especially if stubborn inflation leads consumers to pull back on discretionary spending. On a recent episode of The Morning Filter podcast, Morningstar Chief US Market Strategist Dave Sekera included Ross Stores among his 5 Stocks to Sell Before Inflation Spikes. Ross stock is trading at a big premium to our $148 fair value estimate.

Ross Stores’ strategy is rooted in disciplined execution of a domestic off-price apparel and home fashion model that prioritizes value leadership, cost efficiency, and inventory management over assortment breadth or omnichannel reach. We believe the company is well positioned to defend and modestly expand its standing in US apparel retail despite heightened competition. Ross captures roughly 30% of the domestic off-price apparel market, supported by a store footprint of more than 2,100 locations concentrated in dense urban and suburban markets. This scale affords purchasing leverage with vendors and enables consistent access to branded closeouts and excess inventory that many smaller competitors cannot replicate.

Key Morningstar Metrics for Ross Stores

• Fair Value Estimate
  : $148
• Star Rating
  : 1 Star
• Economic Moat Rating
  : Wide
• Uncertainty Rating
  : Medium

Economic Moat Rating

We assign Ross a Wide Morningstar Economic Moat Rating, underpinned by a durable cost advantage and supported by intangible assets tied to its off-price sourcing ecosystem, vendor relationships, and value-oriented brand positioning. In our view, structural advantages enable Ross to consistently generate excess economic returns well above its weighted average cost of capital, which we estimate at 9%, with a 10-year average return on invested capital of 30%. We believe these excess returns will continue for at least the next two decades.

Read more about Ross Stores’ moat rating.

Fair Value Estimate for Ross Stock

Our $148 fair value estimate implies a fiscal 2026 enterprise value/adjusted EBITDA multiple of 15 times. We expect revenue growth of 6.1% on average annually. We forecast comparable sales growth of 3%, supported by traffic gains and rapid inventory turnover. We model about 70 net new stores annually, contributing 3.1% to annual sales growth. We forecast operating margin rising to 13.5% by fiscal 2034 from 12.2% in fiscal 2024, driven by a 40-basis-point gross margin expansion and operating leverage. We expect selling, general, and administrative expenditures as a percentage of sales to decline by roughly 80 basis points, reflecting labor productivity, distribution efficiencies, and fixed-cost leverage as the store base expands.

Read more about Ross Stores’ fair value estimate.

Risk and Uncertainty

The company’s most material risk stems from the availability of branded closeouts and excess inventory. Ross’ sourcing advantage depends on inefficiencies in the full-price apparel channel. In addition, about 50% of Ross’ merchandise originates from China. This creates a structural vulnerability to trade policy shifts and tariffs, which could increase procurement costs and pressure gross margins if the company cannot pass these costs on to its price-sensitive customer base. Cost inflation presents another source of uncertainty, as rising wages, occupancy costs, and shrink could outpace productivity gains, particularly as the store base expands into new markets.

Read more about Ross Stores’ risk and uncertainty.

Ross Bulls Say

• A permanent shift in consumption habits could see higher-income households trade down to off-price channels. This could drive average comparable sales growth above our 3% estimate.
• Accelerated department store consolidation could clear a wider path for Ross to surpass its 3,600-store target, fueling market share gains that exceed expectations.
• The dd’s Discounts banner targets a younger, more value-conscious consumer than the core Ross chain and could expand the company’s total addressable market beyond current assumptions.

Ross Bears Say

• Dependence on vendors sourcing from China creates a structural vulnerability to tariffs, posing a long-term threat to the low-cost procurement model essential for off-price leadership.
• Increasing competition for off-price inventory and the proliferation of direct-to-consumer channels by brand owners could limit the availability of high-quality, name-brand pack-away goods.
• Heavy store concentration in California and Texas creates excessive exposure to regional economic shocks and regulatory shifts.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of April 7, 2026, close unless otherwise noted.