#TBT: What Happens When Dollar Signs Blind Wall Street
I've frequently written about how the competence of senior management at every major publicly traded company (or even private companies) is vital for the survival of their firm and the performance of their stock. However, it seems that Wall Street and many of their analysts never seem to learn from blatantly obvious mistakes of the past.
Recently, I read an article from Business Insider that confirmed the insanity of these same analysts yet again. It seems that any bit of hype around a particular stock will cause the rest of the the Street to blindly follow the dollar signs. I've worked for Wall Street firms that have bought into this hype, and I ask you to please think hard about your investment decisions to see if they really make any sense.
BI recently highlighted some analyst work by Morgan Stanley regarding shares of the retailer Ross Stores (ROST). The company operates operates off-price retail apparel and home fashion stores under the Ross Dress for Less and other discount brand names in the United States. It primarily offers apparel, accessories, footwear, and home fashions. The company's Ross Dress for Less stores sell its products at savings of 20% to 60% off department and specialty store regular prices primarily to middle income households; and its other discount stores sell its products at savings of 20% to 70% off moderate department and discount store regular prices to customers from households with moderate income. Perhaps you've seen a commercial or two for the company in recent years.
Morgan Stanley's analysts have described the company as a "rarity" and a "retail treasure" and since then, the store has reported same-store sales are up 3.0% over the same period a year ago. The rise in sales was allegedly due to higher store traffic and the amount of money customers were spending per transaction.
On the one hand, the rise in store traffic (the lower-income to lower-middle-class families) and the rise in money spent per transaction makes sense -- the Trump rally in the stock market, as well as the overall rise in national employment has definitely caused consumers of all kinds to go out and spend more. While I do think this is a trend that's likely to continue, you should not confuse short-term trends with long-term quality.
The quality of the store is hardly a "retail treasure" when you consider these photos taken by BI's reporter. Granted, many retailers in my home state that cater to low-income shoppers tend to look like this as well, but the language that implies long-term prowess is hardly something to be believed or admired. The lesson here? THINK before you buy and always treat the talking heads in the media or on Wall Street with healthy skepticism.