Source: TJX.

TJX (NYSE:TJX) stock has delivered lackluster returns for shareholders in 2014. Shares of the discount retailer are down by more than 7% year to date as investors don't seem to be very excited about investing in the particularly challenging retail industry. However, TJX has a rock-solid business model, and the company has proven its ability to deliver healthy financial performance over the long term.

Keeping this in mind, the current valuation looks quite reasonable for such a strong business. Is now the right time to buy TJX stock?

On the right side of the trend
TJX is a leading player in the discount apparel and home products business. Across its different brands, the company operates 2,514 stores in the U.S, 355 additional units in Canada, and 410 locations in Europe, for a total of 3,279 stores as of the quarter ending on August 2. The company purchases excess inventory from more than 16,000 vendors in more than 75 countries, leveraging its scale and financial flexibility to obtain conveniently low prices, which it then translates into huge discounts of between 20% and 60% versus typical retail prices.

Consumers have become increasingly price conscious during the last several years, so TJX is particularly well positioned to benefit from recent industry trends, and growing demand in the off-price retail category. Size advantages, brand recognition, and geographical diversification are key sources of competitive strength for TJX.

The company's most direct competitor is arguably Ross Stores (NASDAQ:ROST), which follows a similar business strategy, and has also been quite successful during the last few years. However, Ross Stores owns a total of 1,194 Ross Dress for Less stores, and 144 dd's units, so the company is materially smaller than TJX. In terms of sales, Ross Stores generates less than 40% of TJX´s revenues.

Remarkable financial performance
Most retailers have been hurt by weak consumer spending and a highly aggressive competitive environment lately. Online retailers are clearly gaining market share versus traditional brick-and-mortar stores in different segments, and the apparel and home products category is a particularly cyclical and volatile one. Keeping these considerations in mind, TJX's trajectory of success looks remarkably impressive.

The company has delivered growing comparable-stores sales in each of the last 22 consecutive quarters -- quite an extraordinary achievement in the retail business, especially under the current industry context. Reflecting this financial success, management has consistently increased dividend payments over time: The company has raised its dividends during the last 18 consecutive years. This includes a generous dividend hike of 21% announced in February of this year.

The dividend yield of 1.2% is nothing to write home about; however, the company has raised dividends at an impressive compounded annual growth rate of 23% through the last 18 years. The payout ratio is quite low -- in the area of 22% of earnings forecasts for the current year -- so investors in TJX have valid reasons to expect consistent dividend growth from the company in the years ahead.

Financial performance during the quarter ended on Aug. 2 remains as solid as ever. Both sales and earnings came in higher than Wall Street analysts' expectations. Management raised guidance for the rest of the year, which indicates optimistic prospects for the coming quarters.

Total revenues grew 7%, to $6.92 billion, during the second quarter of fiscal 2015, while comparable store sales increased 3% versus the same quarter in the prior year. Healthy profit margins and a reduced share count allowed TJX to deliver a big increase of 14% in earnings per share during the last quarter.

Reasonable valuation
Considering its leading market position in the particularly attractive off-price retail category, and its rock-solid financial performance, TJX trades at very rational valuation levels. Looking at valuation ratios such as price to earnings, price to sales, and price to cash flows, the company trades roughly in line with industry averages, and also at similar levels to the valuation ratios assigned to competitor Ross Stores, according to data from Morningstar.

  Price / Earnings Price / Sales Price / Cash Flow
TJX 19.3 1.5 14.7
Ross Stores 17.4 1.5 12.8
Industry Average 21.9 1.3 13.1

Data Source: Morningstar.

If anything, it wouldn't be too hard to justify a valuation premium for TJX versus other companies in the industry, so the current valuation is quite conservative.

Key takeaway
TJX excels among its peers in the retail industry because of its smart business model and particularly solid financial performance, both over the long term, and in the most recent quarter. The company is trading at very reasonable valuation levels, so this could be the right time to go shopping for TJX stock at a convenient entry price.

Andrés Cardenal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.