Off-price retail is poised to keep taking market share. Why is TJX's stock stuck?

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Off-price is not going off-trend anytime soon. That might not be clear based on recent trading in TJX Companies' stock. Club holding TJX Companies and rival Ross Stores are well-positioned to keep stealing market share from other retailers, particularly department stores, UBS said in a recent note, keeping a years-long trend in the industry alive. And yet shares of TJX have not recently enjoyed the same kind of positive momentum the company's underlying business seems to have — a stalling out that has the stock looking increasingly attractive. Year to date, TJX shares are up less than 1% while the S & P 500 has climbed more than 7%. Over the past month, in particular, the stock has trekked lower by nearly 3%; the broad U.S. stock index is down just 1% in that window. "TJX should continue to benefit from the struggles of department store chains," said Jeff Marks, the Club's portfolio director. He cited Macy's plan to close 150 stores through 2026 as "a great opportunity" for TJX to garner quality merchandise at a bargain. The ongoing challenges for department stores, which extend back more than a decade, keep playing into the hands of off-price competitors, UBS said. The firm found that the three main publicly traded off-price players — TJX, Ross Stores and Burlington Stores — late last year saw an acceleration in their share of sales compared with four public department stores: Nordstrom , Dillard's , Macy's and Kohl's . Over the past four reported quarters, the off-price retailers accounted for 57.6% of total sales, UBS said, up 3.3 percentage points from a year ago and 10.3 percentage points from five years ago. This analysis strongly supports our long-term investment thesis on the parent company of T.J. Maxx, Marshalls and Home Goods. Despite woes at other retailers, TJX stands out as a resilient company well-equipped to avoid many of the industry's challenges. It excels when others fall on hard times and accumulate inventory gluts, giving TJX the chance to acquire quality merchandise across categories like apparel, personal care and home goods for cheap. For example, Bed Bath & Beyond's bankruptcy last year was good news for TJX . The inventory set up across the industry remains favorable for TJX, CEO Ernie Herrman said on the company's earnings call in late February. TJX is "in a terrific position to continue flowing a fresh assortment of goods to our stores and online this spring and throughout the year," he said then. Even with management's optimism, UBS has hold-equivalent ratings on TJX and Ross Stores, arguing "both companies will have a hard time exceeding the market's growth expectations." TJX 1Y mountain TJX's stock performance over the past 12 months. One factor keeping a lid on TJX's stock recently may be that it is trading close to its historical valuation, noted Chuck Grom, a consumer and retail analyst at Gordon Haskett. As of Friday, TJX shares are trading at 23 times forward earnings estimates, essentially in line with their five-year average of 23.4, according to FactSet. Grom also estimates TJX's first-quarter same-store sales growth will come in close to the company's guidance between 2% and 3%, he told CNBC in an email, "which suggests there may not be a lot of earnings upside in 2024." "Taken together, I can see why the stock has been in a holding pattern recently," wrote Grom, who has a buy rating and $115-per-share price target on TJX shares, according to FactSet. In general, sentiment on consumer stocks is "tough with inflation still high and the timing of potential interest rate cuts uncertain," analysts at Loop Capital said in a note Friday. Still, the firm is upbeat on off-price as a category and suggested the group's underperformance compared with the S & P 500 this year is "a buying opportunity for long-term investors." Corey Tarlowe, analyst at Jefferies who covers discount and specialty retailers, told CNBC in an interview that TJX has more upside. "If earnings have upward momentum and valuation stays where it is, the stock is likely to go higher," he said. The momentum TJX's business has seen "is traffic driven from new customers and existing customers coming in more often," Tarlowe explained. "That bodes well for continued sales growth as well as basket growth." That traffic is coming from customers across income levels, according to Bank of America retail analysts. "We remain positive on the off-price retailers as the strong value proposition attracts customers across income demographics during times of inflationary and macroeconomic pressures," they wrote in a note Friday. Overall clothing spending fell in March on an annual basis, analysts said, citing Bank of America credit and debit card data. However, discount apparel spending remained positive for the month, increasing 2.6% year over year in March after a 2.8% jump in February, the firm said. On the other hand, spending at department stores fell 3.7% in March after a 5.2% decline in February, according to Bank of America. (Jim Cramer's Charitable Trust is long TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. An outdoor mall TJMaxx in Port St Lucie, Florida. Jeff Greenberg | Universal Images Group | Getty Images