Everyone loves a good bargain, feeling the joy of a big "score," or buying something you believe is worth more than you paid for it. It's this feeling that has helped TJX Companies (TJX -1.01%) continue to thrive despite disruptive competition from e-commerce companies over the past 20 years.
Be careful not to overlook this underrated retail winner for your portfolio. TJX Companies has done well over the years and is likely to continue growing for years to come.
Keeping e-commerce at bay
TJX Companies is an off-price retail company that owns store brands including T.J. Maxx, Marshalls, and HomeGoods. These stores are found in the U.S., Canada, Europe, and Australia and generate more than $48 billion in annual revenue. The company buys merchandise that manufacturers are trying to offload and then resells it in its stores at low prices.
Amazon blazed the trail for e-commerce; while companies like Walmart have successfully evolved, it's spelled doom for many other brick-and-mortar retail companies like Sears over the years.
What places TJX stores apart is that the shopping experience is like a treasure hunt. There's no set merchandise; the products are always changing, giving shoppers a dynamic product selection. This is hard for e-commerce to replicate because companies like Amazon have to set up their logistics and storefront to align so that they can fill and ship orders efficiently.
History of success and resiliency
TJX experienced solid growth throughout a decade where e-commerce has arguably more momentum than ever. Sales have averaged more than 7% annual growth over the past 10 years, and TJX pays investors a steadily increasing dividend to boot. You can see in the chart below how sales plummeted when COVID-19-related lockdowns closed stores, but they have quickly recovered and ascended to new highs.
The company is also profitable and uses share repurchases to help improve earnings per share (EPS); they've averaged 10% annual growth over the past 10 years.
The company today has about 4,689 stores after openinig 117 new locations over the past year (a 2% store square footage increase). It's a built-in lever for management to continue growing revenue while same-store sales remain strong; comparable store sales were up 10% in the fiscal fourth quarter (ended Jan. 29) vs. the same period in 2019.
Clothing isn't the only deal for investors
TJX traded at roughly $64 per share just before the "COVID Crash" in March 2020. Today, the stock trades a hair below that at $61 per share. However, the business has grown beyond its pre-COVID-19 levels; revenue has risen from $41 billion to $48 billion, while EPS has grown from $2.67 to $2.70, despite the challenge of higher wages and freight costs in recent quarters.
Translation? The stock's valuation is more attractive. You can see in the chart below how the stock today trades at a forward price-to-earnings ratio of 19, on par with the S&P 500's forward P/E ratio (also 19).
Does this make the stock a buy? Analysts believe TJX will grow EPS an average of 10% annually over the next three to five years, the same as its current long-term trend. That's also about how fast the S&P 500 has historically grown profits, so everything seems to check out from a common-sense perspective.
If the stock holds its current valuation, investors can look for investment returns that match how quickly profits grow (10% annually) plus the additional 1.7% yield from its dividend. In other words, you're looking at 11% to 12% investment returns, on average -- a solid result from a quality retail stock. If you're looking for a blue-chip stock that can provide dependable, long-term returns for your portfolio, TJX is worth checking out.