Costco vs. TJX Companies: Which Discount Retail Stock Is a Buy?

The article evaluates Costco (COST) and TJX Companies (TJX) as discount retail investments, noting Costco's membership model and 5.5% stock gain over the past year against TJX's off-price strategy, 19% stock surge, and Q2 EPS of $1.10 (+15% YoY) on 7% sales growth. While both outperformed the industry, TJX is deemed the more promising investment due to its lower forward P/E of 28.76 (vs. Costco's 48.59), broader growth runway, and significant store expansion potential, earning a Zacks Rank #2 (Buy) compared to Costco's #3 (Hold).

Analysis

Both Costco and TJX Companies demonstrate fundamental strength within the discount retail sector, having outpaced the industry's 3.1% gain over the past year. TJX has exhibited superior momentum, with its stock surging 19% on the back of a resilient off-price model that delivered a 15% year-over-year increase in Q2 EPS to $1.10 and a 7% rise in consolidated net sales. The company guides for continued growth, projecting a 6-7% increase in fiscal 2026 EPS and identifying a long-term runway of over 1,800 new stores. In contrast, Costco, while posting a more modest 5.5% stock gain, shows higher consensus estimates for current-year growth, with forecasts for an 8.2% rise in sales and an 11.7% increase in EPS. A key differentiator is valuation; Costco trades at a premium forward P/E of 48.59, whereas TJX trades at a more moderate 28.76. Although TJX's multiple is slightly above its one-year median, its stronger stock performance, tangible expansion plans, and lower absolute valuation lead to a more favorable assessment, reflected in its Zacks Rank #2 (Buy) compared to Costco’s #3 (Hold).

Key Decisions for Investors

• Given TJX's significant stock outperformance, strong earnings momentum, and a more attractive forward P/E of 28.76, investors may find it a more compelling opportunity for capital appreciation than Costco.
• Investors holding Costco should weigh its stable membership model and higher projected EPS growth against its premium valuation of 48.59 P/E, which may limit near-term upside compared to peers.
• Monitor TJX's ability to achieve its guided 3% comparable sales growth and maintain its 11.4-11.5% pretax profit margin, as execution on these metrics is crucial to sustaining its current growth narrative and valuation.
• For relative value strategies, the valuation disparity between the two retailers could suggest a pair trade, favoring TJX based on its stronger momentum and clearer physical expansion runway.