Shares of TJX Companies (TJX) jumped 4.7 % during today's afternoon session, bringing their 52 week performance to 32.0%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's mixed growth prospects and mixed market sentiment.
The TJX Companies, Inc., together with its subsidiaries, operates as an off-price apparel and home fashions retailer in the United States, Canada, Europe, and Australia. The large-cap Consumer Discretionary company is based in Framingham, United States and has 329,000 full time employees.
TJX Has a Higher P/E Ratio Than the Sector Average
Compared to the Consumer Discretionary sector's average of 22.33, TJX Companies has a trailing twelve month price to earnings (P/E) ratio of 27.7 and an expected P/E ratio of 22.6. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $3.24 or forward earnings per share of $3.98.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since TJX Companies's P/E ratio is higher than its sector average of 22.33, we can deduce that the market is overvaluing the company's earnings.
TJX Companies Is Fairly Valued in Terms of Expected Growth
Another factor pointing to TJX Companies's value is its PEG ratio of 1.91. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
TJX Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since TJX Companies's P/B ratio of 16.08 is higher than its sector average of 3.12, such a margin of safety does not exist for the stock.
TJX Is Generating Cash
TJX Companies has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 0.1%, compared to 4.5% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of -2.0% and a coefficient of variability of 28.9%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 4,084,000 | -1,457,000 | 2,627,000 | 30.52 |
| 2022-01-31 | 3,057,500 | -1,044,800 | 2,012,700 | -49.61 |
| 2021-01-31 | 4,561,900 | -568,000 | 3,993,900 | 40.45 |
| 2020-01-31 | 4,066,700 | -1,223,100 | 2,843,600 | n/a |
TJX Companies's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing TJX Companies's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
TJX Companies's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 49,936,000 | 36,149,000 | 27.61 | -3.12 |
| 2022-01-31 | 48,549,982 | 34,713,812 | 28.5 | 20.46 |
| 2021-01-31 | 32,136,962 | 24,533,815 | 23.66 | -16.87 |
| 2020-01-31 | 41,716,977 | 29,845,780 | 28.46 | n/a |
TJX Companies's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 49,936,000 | 8,927,000 | 9.73 | -0.61 |
| 2022-01-31 | 48,549,982 | 9,081,238 | 9.79 | 440.88 |
| 2021-01-31 | 32,136,962 | 7,020,917 | 1.81 | -82.91 |
| 2020-01-31 | 41,716,977 | 7,454,988 | 10.59 | n/a |
TJX Companies's cost of revenue is growing at a rate of 4.9% in contrast to 4.6% for operating expenses. Sales revenues, on the other hand, have experienced a 4.6% growth rate. As a result, the average gross margins growth is -0.8 and the average operating margins growth rate is -2.1, with coefficients of variability of 8.5% and 51.8% respectively.
TJX Companies Benefits From Positive Market Signals
The market sentiment regarding TJX Companies is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $110.0 to $80.0. TJX is trading -3.72% away from its target price of $93.23. 0.6% of the company's shares are tied to short positions, and 93.1% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-06-30 | Vanguard Group Inc | 8% | 94,742,905 | $8,504,123,355 |
| 2023-06-30 | Blackrock Inc. | 7% | 80,105,413 | $7,190,262,042 |
| 2023-06-30 | Wellington Management Group, LLP | 7% | 75,265,256 | $6,755,809,539 |
| 2023-06-30 | State Street Corporation | 4% | 46,543,024 | $4,177,701,933 |
| 2023-06-30 | FMR, LLC | 4% | 45,971,720 | $4,126,421,685 |
| 2023-06-30 | JP Morgan Chase & Company | 3% | 33,821,261 | $3,035,796,459 |
| 2023-06-30 | Morgan Stanley | 2% | 24,381,815 | $2,188,511,766 |
| 2023-06-30 | Bank Of New York Mellon Corporation | 2% | 23,466,132 | $2,106,320,058 |
| 2023-06-30 | Geode Capital Management, LLC | 2% | 21,447,146 | $1,925,095,870 |
| 2023-06-30 | Capital International Investors | 2% | 19,030,455 | $1,708,173,681 |
