When looking for discounts in the retail and home furnishing sectors, shoppers often resort to TJ Maxx, Marshalls, and Home Goods, all of whom are owned by off-price retail group TJX Companies Inc (NYSE:TJX).

It is pretty coincidental, then, that when looking for discounts in the stock market, investors will find a bargain buy in TJX stock. 

TJX is a solid company. Comparable sales growth has remained resiliently positive, despite digital commerce encroachment. Gross profit margins have trended up. Operating margins are under pressure due to wage increases, but overall, positive comps and solid gross profit improvement have powered robust earnings growth over the past decade.

And yet, TJX stock still trades at a notable discount to the market.

Does that make sense? I don’t think so. Consequently, I think TJX stock is a bargain buy here.

TJX Is Amazon-Proof

As Amazon.com, Inc. (NASDAQ:AMZN) has gone from nascent business to retail powerhouse, the brick-and-mortar retail world has been under pressure. Department store stocks have fallen off a cliff. Mall retail stocks have plummeted. Retail bankruptcies have skyrocketed.

Certain segments of that struggling space, though, have proven to be impressively resilient, despite the growing threat of digital retail. These segments have been labeled as “Amazon-proof” because of their ability to withstand competition from the e-commerce giant.

One such segment is off-price retail, which is dominated by TJX and Ross Stores, Inc. (NASDAQ:ROST).

Amazon wins against most of brick-and-mortar retail due to greater convenience and better prices. But that isn’t the case with off-price retailers. TJX and Ross Stores often have better prices than Amazon on a comparable product selection. Because of this, the two retailers have actually thrived over the past several years as if Amazon never existed.

The stock prices for both companies illustrate this. TJX stock is up 63% over the past 5 years, while ROST stock is up 160%.

TJX Slowdown Is an Opportunity

Recently, though, TJX stock has slowed down. It’s up only 12% over the past 3 years, while the S&P 500 is up more than 25% and ROST stock is up about 75%.

Why the slowdown? Mostly margin concerns, mixed with some concerns about comparable sales growth coming down.

Both of those things are happening. TJX reported flat comps last quarter. ROST said comps rose 4%. TJX expects comps next quarter to rise about 1.5%. ROST expects comps next quarter to rise 2.5%.

Meanwhile, pre-tax profit margins at TJX fell last quarter about 10 basis points. Operating margins rose 65 basis points at ROST.

But this is all just near-term noise. There isn’t much separating TJ Maxx, Marshalls, and Ross Stores in the long-term. All 3 are discount retailers which will continue to thrive thanks to low prices and enhanced shopper convenience.

Right now, Ross Stores is winning the battle. But TJX won’t stay down for long. Comps at TJX have been this low (1-2%) only once before since the 2008 financial crisis, and that was in 2014. They didn’t stay low for long. Comparable sales jumped 4% higher in 2015 and 5% higher in 2016.

We will see a similar rebound here. Comps will continue to trend in 0-5% range over the next several years.

Meanwhile, margins are being pressured in the near-term by higher labor expenses. But eventually, those wage hikes will be in the rear-view mirror, and this margin compression narrative will turn into a margin expansion narrative.

Positive comps in the 0-5% range plus some margin expansion and buybacks (TJX retired 4.9 million shares last quarter) should drive about 10% earnings growth over the next several years.

The market is expected to grow earnings at around the same pace over the next several years.

But TJX stock is trading at just 18x this year’s earnings estimate, while the S&P 500 is trading at almost 20x this year’s earnings estimate. Moreover, across all major valuation metrics, TJX stock is trading at a discount to its trailing 5-year average valuation.

Bottom Line on TJX Stock

Although TJ Maxx, Marshalls, and Home Goods will continue to thrive in the off-price retail world into the foreseeable future, near-term noise related to decelerating comp growth and margin compression is weighing on TJX stock.

The near-term pain is a buying opportunity. TJX stock not only trades at a discount to the market, but also a discount to its average valuation over the past 5 years.

It’s a bargain buy.

As of this writing, Luke Lango was long AMZN, TJX, and ROST.