Shares of The TJX Companies (NYSE:TJX) rallied 5% to an all-time high on Aug. 21 after the off-price retailer posted strong second quarter numbers.

TJX's revenue rose 12% annually to $9.3 billion, capping off the company's third straight quarter of double-digit sales growth. Its GAAP earnings rose 38% to $1.17 per share, topping expectations by $0.12. On a non-GAAP basis, which excluded an $0.18 benefit from recent tax reform, its EPS rose 16% to $0.99.

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Let's take a closer look at those growth figures and see if the stock is still worth buying after its near-40% rally this year.

How fast is TJX growing?

TJX owns stores operating under the brand names T.J. Maxx, T.K Maxx, Marshalls, HomeGoods, HomeSense, Sierra Trading Post, and Winners. The company operates over 4,000 stores in nine countries, all of which sell brand name products at a 20% to 60% discount to traditional retailers.

TJX accomplishes this by sending over 1,000 buying associates to purchase goods from more than 20,000 vendors in over 100 countries. The scale of that buying network enables TJX to buy clearance items at rock-bottom prices, often from brick-and-mortar retailers that are struggling.

This unique business model enables TJX to sell its products at lower prices than online marketplaces like Amazon and superstores like Walmart. In fact, the company benefits from Amazon and Walmart crushing smaller retailers, since it feeds even cheaper clearance products into its stores.

TJX frequently rotates its merchandise, which encourages shoppers to keep returning to its stores to hunt for bargains. That strategy's success is reflected in its comps and sales growth over the past several quarters.

 

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Comparable store sales growth

3%

0%

4%

3%

6%

Revenue growth

6%

6%

16%

12%

12%

Source: TJX quarterly reports.

TJX reported comps growth across all its brands during the quarter: Marmaxx's (Marshall's/Maxx) comps jumped 7%, HomeGoods' comps rose 3%, TJX Canada's comps climbed 6%, and TJX International's comps grew 4%.

For the third quarter, which is seasonally weaker, TJX expects its consolidated comps to grow 2%-3%, supported by 3%-4% comps growth at Marmaxx. For the full year, it expects 3-4% consolidated comps growth, compared to just 2% growth in fiscal 2018.

How profitable is TJX?

Unlike many other brick-and-mortar retailers, which are struggling to preserve their gross margins, TJX's gross margin is holding steady. Its gross margin rose 40 basis points annually to 28.9% during the third quarter, buoyed by inventory hedges that strengthened year-over-year comparisons.

For the third quarter , TJX expects its gross margin to come in between 28.9% and 29%, compared to 29.8% in the prior year quarter. TJX attributes that slight decline to "a significant unfavorable year-over-year impact related to our inventory hedges." 

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Looking ahead, TJX expects rising wages and currency impacts to weigh down its earnings, but its guidance still looks decent. For the third quarter, it expects its adjusted earnings (which exclude significant tax reform benefits) to grow 0% to 2%. For the full year, it expects its adjusted EPS to rise 6% to 8%.

What about the valuations?

Based on the company's forecasts and its current price of $106, TJX trades at about 22 times this year's earnings. But if we exclude the tax reform boost, the stock actually trades at about 26 times this year's earnings -- which doesn't seem cheap relative to its growth potential.

However, TJX's valuation is in-line with those of other off-price retailers. For example, TJX rival Ross Stores trades at about 23 times this year's earnings.

Unlike Ross, TJX also has a solid track record of rewarding shareholders with dividends and buybacks, which could attract income investors and tighten its valuations. The company spent $844 million on buybacks and dividends last quarter and currently pays a forward dividend yield of 1.6%. Ross pays a much lower yield of 1%.

Is it too late to buy TJX?

TJX's top line growth is impressive, but there's too much growth priced into the stock at these levels, especially if we strip away the one-time tax benefits. TJX is still a solid long-term investment, but investors should wait for a pullback before pulling the trigger.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.