Is The TJX Companies, Inc. (TJX) a Buy?

With The TJX Companies, Inc. (NYSE:TJX) braking out to new all-time highs, it’s understandable if investors are hesitant to buy shares at these prices. Luckily for us, there’re plenty of reasons to consider picking up TJX.

Great growth story

TJX sits in a retail sweet spot by offering sought-after clothing and home furnishing brands at discount prices. And while the company has delivered 18% compounded earnings growth over the past 15 years, TJX still has a large growth runway. Three factors are driving the company’s earnings:

Expansion: In the United States The TJX Companies, Inc. (NYSE:TJX) operates over 1,350 Marmaxx and HomeGoods stores and management thinks there’s room to open 1,000 new locations. More impressive is the company’s European story. With the continent marred in an austerity induced stagnation, TJX benefits as consumers trade down to save money. In the U.K., Germany, Ireland, and Poland the company owns 370 locations with plans to nearly triple its store count.

Same store sales: Last week, The TJX Companies, Inc. (NYSE:TJX) reported impressive 8% increase in April comparable store sales which is nearly the best in the retail space. Management plans to sustain a 2% annual growth clip by improving the shopping experience, better marketing, and appealing to a younger demographic.

Better margins: Since 2006, TJX has improved in adjusted pre-tax margins by 520 basis points since 2006. The company can continue to drive margin growth by improving inventory turnover, investing in its supply chain, and cutting costs.

Rewarding shareholders

The great thing about The TJX Companies, Inc. (NYSE:TJX) is that management has a great policy of rewarding shareholders.

While income investors may not be impressed with the stock’s 1.10% dividend yield, please note that patience is a virtue. TJX has grown it dividend payment 23% annually over the past 15 years. The dividend is also safe with the company paying out less than a quarter of profits.

In addition, management is aggressively buying back share of its own stock. Over the past ten years management has reduced the number of outstanding shares by nearly 30%.

Reasonably priced

Now unlike the apparel in its stores, The TJX Companies, Inc. (NYSE:TJX) is exactly marked for the bargain bin.

TJX trades at 16 times forward earnings. Given the company 13% EPS growth rate the stock trades at a reasonable 1.25 PEG ratio. Not cheap, but given the company’s exceptional growth story it deserves a premium.

How does the stock compare to its closest rival Ross Stores, Inc. (NASDAQ:ROST)? It’s tough picking a winner between these two excellent companies.

Like TJX, Ross Stores is posting some great results. Last week the company reported excellent same store sales numbers up 7% in April. Ross Stores, Inc. (NASDAQ:ROST) has a long growth runway with plans to open 500 new discount stores doubling its store count. In addition, management has increased that dividend every year for the past 18 years.