TJX: A Retailer to Watch Out for
Although many apparel retailers are facing difficult times, TJX (NYS: TJX) is an exception. Along with strong second-quarter results, there are other aspects of this stock that a value investor may find attractive.
The retailer managed to post good results despite rising raw material costs and weak economic conditions. TJX has been able to declare regular dividends and has been a growing company. It opened 32 stores in the second quarter.
A look at the operating metrics gives us an indication of how a company is performing. In the just-concluded quarter, TJX's sales and net profit increased by 8% and 14.9%, respectively, over last year's second quarter. TJX recorded a consistent gross margin of 26.9% for the last two quarters. The company is also planning to continue with its cost-reduction initiative in order to protect its margins.
But how does the stock look?
The valuation multiples, however, take some sheen off the company as a possible investment. TJX is an expensive stock when compared to its peers. Macy's (NYS: M) and Kohl's (NYS: KSS) are trading at price multiples of 10.8 and 11.3, respectively, which is much below TJX's P/E of 16. Let's take a look at the PEG ratio. P/Es don't always give a full picture of a company's valuation because they don't incorporate future earnings.
|Target (NYS: TGT)||12.8||12.4||1.2|
Source: S&P Capital IQ.
The PEG ratio, which is the P/E divided by a company's annual EPS growth rate, suggests a stock is fairly valued when close to one. In this case, TJX, Macy's, and Target seem fairly valued, while Kohl's is starting to look cheap.
The Foolish bottom line
A strong second-quarter performance in general and huge growth potential make TJX a stock worth looking at. With the stock looking pretty fairly valued, its growth prospects, its cost reduction plans, and its smart inventory strategy make this company one worth keeping an eye on.
Navneet Bajaj doesn't own any shares of the companies mentioned above. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
At the time this article was published