Dear Mr. Berko:

I would please like your opinion of Ross Stores Inc., which currently trades at $36.50. Please offer me your professional opinion, because I would like to know if it would be a good time to purchase the shares.

A.M.  Boca Raton, Fla.

Dear A.M.:

I like Ross Stores Inc. (ROST-$36.50), a chain of 520 off-price retail stores that sells high-class designer merchandise, such as Polo, Guess, Tommy Hilfiger and Liz Claiborne, at low prices. Who in his right mind would pay $90 for a Polo shirt, flashing that horsy logo, when there is a Ross store nearby with the identical item priced at $30? Though ROST doesn’t provide the huge variety of merchandise one would find at Federated, Burdines or Bloomingdales, it does offer a large selection of brand-name vendors with a good selection of colors, styles and sizes.

Ross Stores and Burdines are as different as cheese and chalk but I admit to being a ROST customer and aficionado. It appears that the public is turning out smarter shoppers, too, as ROST’s revenues have increased nearly fourfold in the last decade. In 1992, ROST clocked revenues of $1 billion and earnings of 33 cents. This year, ROST expects to fetch $4 billion in revenues and produce earnings of $2.80.  Frankly, off-price stores such as ROST are becoming an increasingly popular choice for consumers in the current economic environment. In fact, I expect that ROST will keep those new customers, who have become knowledgeable shoppers. Because of this phenomenon, ROST was among the few retailers reporting a “good Christmas season.” Same-store sales for the five weeks ending Jan. 4 rose a smudge more than 6 percent, which is impressive.

Expansion is coming along nicely and, no pun intended, on target. Last year, ROST opened 55 stores (net of closing) and this year management will open 62 new stores. These stores are opened and stocked and financed primarily with internal funds and management site selection is probably tops in the industry. So when management makes a goof, it is not hesitant to pull the plug on a store that fails to produce expected returns.

Building on its fantastic merchandising skill, management is expanding the brands it carries. ROST has improved its selections of fragrances, cosmetics, home accents, linens, accessories, fine jewelry, toys and maternity items it carries in its stores, which average 31,000 square feet.

ROST is a resounding success thanks to a superb and experienced management team. I believe that ROST will do well for the foreseeable future, with earnings growth averaging about 10 percent a year.  However, even in this poor market, while trading at $39 a share, ROST appears to be priced a couple years ahead of its time. The shares have an average 10-year price-earnings ratio of 12.1 but currently trade at a record high that is 15.4 times earnings. That concerns me, especially in this market. I think it would be wise to place an open stop order at $33 to $34, which is 12 times this year’s expected earnings of $2.80 a share.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or visit his Web site at www.berkoradio.com.