The TJX Companies, Inc. TJX stock is currently trading at a forward P/E ratio of 27.34, offering a 13.8% discount compared to the Zacks Retail - Discount Stores’ average of 31.71. This makes TJX stock appear undervalued, especially compared to major industry players like Burlington Stores, Inc. BURL at 32.01 and Costco Wholesale Corporation COST, which has a higher P/E ratio of 53.63. 

While TJX's lower valuation might catch the attention of value-focused investors, it may also reflect market caution about the company's growth potential. The discount could indicate skepticism regarding TJX's ability to outperform expectations or reflect a mispricing of its intrinsic value.

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Given this valuation gap, investors must consider how to approach TJX stock. To make a well-versed decision, it’s crucial to assess the company’s fundamental strengths and weaknesses within the retail sector.

The TJX Companies’ stock closed at $123.06 during Tuesday’s trading session, 3.9% below its 52-week high of $128, which was reached on Nov. 27, 2024. Over the past year, TJX has demonstrated strong performance, climbing 34.8%, outperforming the industry, which gained 27.7%. In comparison, the broader Zacks Retail and Wholesale sector has increased by 32.9%, and the S&P 500 has grown 28.4% over the same period. Meanwhile, the stock is trading above its 50-day and 200-day moving averages, indicating a bullish trend. Given this positive momentum, it is essential to evaluate TJX’s future prospects and consider the best strategy for incorporating it into your portfolio.

TJX Trades Above 50 & 200-Day Moving Averages

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TJX's Strategy Supports Long-Term Growth

The TJX Companies is benefiting from its focus on delivering exceptional shopping experience and unmatched value to customers every day. A key indicator of its business strength is the consistent increase in customer transactions, which drove a solid comp store sales increase of 3% in the third quarter of fiscal 2025. Key divisions like Marmaxx, HomeGoods and TJX International posted positive comp sales growth, reflecting broad consumer confidence. This steady growth highlights TJX's successful strategy and positions the company for long-term sustainability, focusing on customer transactions.

In addition to focusing on revenue growth, The TJX Companies is committed to effective cost control, which is enhancing profitability. The company achieved a pre-tax profit margin of 12.3%, marking a 30-basis point (bps) increase, driven by cost-saving measures in the fiscal third quarter. This, coupled with a 50 bps expansion in the gross margin — primarily due to higher merchandise margins — demonstrates TJX's operational efficiency and strong control.

TJX Fuels Growth With Expansion

The TJX Companies sees potential for continued store openings, with the goal of adding 1,200 stores across its current markets, which would expand its existing retail footprint of more than 5,000 stores.  The company is also making a strategic push into Spain, with plans to open its first stores under the T.K. Maxx banner by early 2026. The company is also strengthening its presence in high-growth regions through investments in Mexico, the UAE and Saudi Arabia.

The off-price retail model continues to drive TJX’s success, providing the company with a competitive edge in the global market. With its expertise in offering high-quality branded merchandise at attractive prices, TJX is well-positioned to capture a larger share of the growing off-price retail sector. This focus on consumer demand and its flexible business model ensures that TJX can continue to thrive in a competitive retail landscape.

Expectations of Continued Growth for TJX

On its last earnings call, The TJX Companies stated that it had a strong start to fourth-quarter fiscal 2025 and was optimistic about the opportunities for the holiday season. Both in-store and online, TJX is delivering fresh merchandise multiple times a week throughout the holiday season, offering consumers new and exciting products each time they visit. For the fiscal fourth quarter, the company expects consolidated comparable store sales to increase by 2% to 3%. 

For fiscal 2025, the company forecasts consolidated comparable store sales to rise by 3%. Management recently raised its pretax profit margin outlook to 11.3% and increased its earnings per share (EPS) guidance to a range of $4.15-$4.17 for the full year. Earlier, the company had anticipated the fiscal 2025 pretax profit margin to be nearly 11.2% and EPS in the $4.09-$4.13 band.

Positive Analyst Sentiment for TJX Stock

Annual earnings estimates for TJX have been rising over the past 30 days, reflecting analysts’ optimism. The Zacks Consensus Estimate for fiscal 2025 and 2026 has been revised upward over the same time frame. 

The Zacks Consensus Estimate for fiscal 2025 earnings is currently pegged at $4.18 per share, suggesting year-over-year growth of 11.2%. The consensus mark for fiscal 2026 EPS implies 8.7% year-over-year growth. 

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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The TJX Companies Has Its Set of Challenges

While TJX's growth strategies are clear, the company faces challenges that could hinder its progress. The increase in store wage and payroll costs has raised concerns for the company. As a result, selling, general and administrative (SG&A) expenses as a percentage of sales grew by 10 basis points, reaching 19.5% in the third quarter of fiscal 2025. Higher store wages and payroll costs are expected to continue. These higher operating costs could lead to a contraction in margins in the upcoming quarters. 

Another key challenge facing TJX is a negative impact on its gross margin from shrink accruals. This is especially concerning in light of management’s forecast for the gross margin to be flat or down by 10 bps in the fiscal fourth quarter. The company faces increasing competition from major retailers like Target Corporation TGT, which adds further pressure to the already competitive off-price retail sector.

What Should Investors Do With TJX Stock?

The TJX Companies’ current valuation, strong fundamentals and positive growth outlook position it as a solid contender in the retail space. However, rising operating costs and increasing competition are risks to watch. For investors looking for a long-term growth opportunity in the off-price retail market, TJX may offer a promising option, but it's important to remain mindful of the challenges ahead. At present, TJX carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Target Corporation (TGT) : Free Stock Analysis Report

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