Bargain Retail Is Booming. 3 Stocks to Buy to Capitalize on the Trend in 2025

The global discount retail market is poised for significant expansion, projected to grow at a 10.5% compound annual growth rate through 2033, positioning resilient bargain retailers to capitalize on a secular shift in consumer spending. TJX Companies, the world's largest off-price retailer, leverages liquidated inventories to drive growth, with analysts forecasting 6% revenue and 9% EPS CAGRs through FY28, trading at a reasonable 28 times earnings. Costco Wholesale, a membership-fee driven warehouse club, demonstrates robust historical performance and projected 8% revenue and 10% EPS CAGRs through FY27, justifying its premium 47 times forward earnings. Meanwhile, Dollar Tree's strategic divestment of Family Dollar aims to streamline operations, with analysts expecting a return to positive EPS and 13% CAGR through FY27, making it reasonably valued at 21 times earnings.

Analysis

The global discount retail market is projected for robust expansion, with a forecasted compound annual growth rate (CAGR) of 10.5% from 2025 to 2033, providing a strong secular tailwind for resilient operators. Within this space, TJX Companies (TJX) has demonstrated consistent performance through its off-price model, achieving a 7% revenue CAGR over the past decade while expanding its gross margin from 28.5% to 30.6%. Analyst expectations point to continued, albeit slightly slower, growth with a 6% revenue and 9% EPS CAGR through fiscal 2028, supported by a valuation of 28 times this year's earnings. Similarly, Costco Wholesale (COST) leverages a high-retention membership model, evidenced by a 90.5% renewal rate, to drive predictable growth. The company posted historical CAGRs of 8% for revenue and 14% for EPS from fiscal 2014 to 2024 and is projected to deliver 8% revenue and 10% EPS CAGRs through fiscal 2027, justifying its premium valuation at 47 times next year's earnings. In contrast, Dollar Tree (DLTR) represents a corporate restructuring opportunity following the divestment of its underperforming Family Dollar banner. This move is expected to cause a one-time 38% revenue decline in fiscal 2025 but enables a strategic refocus on its core brand, with analysts forecasting a return to profitability and a 13% EPS CAGR through fiscal 2027, making its valuation of 21 times this year's earnings appear attractive if the turnaround materializes.

Key Decisions for Investors

• Given the projected 10.5% CAGR for the discount retail market, investors should consider the sector for secular growth exposure, as these retailers have demonstrated resilience through economic cycles.
• For stable growth, TJX offers a proven off-price model at a reasonable valuation of 28x earnings, while Costco, despite its premium 47x earnings multiple, provides exceptional predictability due to its high-retention membership business.
• Dollar Tree presents a compelling turnaround case at a lower valuation of 21x earnings; investors should monitor the execution of its post-divestment strategy, including store renovations and new pricing tiers, for validation of its projected 13% EPS growth.
• The valuation spread across these retailers offers distinct entry points: investors can choose between paying a premium for Costco's established quality, opting for TJX's balanced growth and value, or assuming execution risk with Dollar Tree for potentially higher returns.