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At a Glance
- Discount and off-price retailers remain in focus as investors look for signals about consumer health, inflation pressures, and spending trends.
- Dollar Tree’s multi-price strategy, Ross’ expansion plans, and TJX’s potential technical rebound highlight different paths to growth.
- Elevated valuations mean upcoming earnings could be a key catalyst determining whether these retail leaders can justify their premiums.
Many investors use Walmart Inc. (NASDAQ: WMT) as the barometer of the retail sector. The company taps into both legs of the current K-shaped economy and gives investors exposure to the digital and brick-and-mortar retail economy. Simply put, Walmart’s earnings report can move the market in a way few stocks can.
However, Walmart’s results often set the tone for the broader retail industry, shaping sentiment around consumer spending trends, inventory levels, and margin pressures. As the next earnings season approaches, investors are watching closely to see whether the strength in discount and off-price retailers can continue amid sticky inflation and shifting consumer priorities.
There are other retail stocks that have been attracting investor attention. These companies give investors different looks at the discount retail model and could provide clues about which parts of the value retail market still have room to run.
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Dollar Tree: Casting a Wider Net for Future Growth
Dollar Tree Inc. (NASDAQ: DLTR) has been one of the best-performing retail stocks in the last 12 months, up approximately 77% in that time. The company operates a retail model that caters to budget-conscious consumers.
However, one part of the company’s business model that attracts investors is its push into higher-income communities. As Walmart has indicated in its earnings report, higher-income consumers are looking to make their dollars stretch farther. Rather than concede that playing field, Dollar Tree is looking to expand its footprint to capture a slice of that pie.
But with a jump of 77% in the last 12 months, Dollar Tree may have to show that its strategy is boosting the top line. Looking past last year’s tariff-disrupted fourth quarter, the company has beaten estimates for revenue and earnings. However, revenue is sharply down year-over-year (YOY).
That said, YOY earnings have been positive in the last two quarters. This speaks to the company’s efficiency and multi-price strategy, which it continues to roll out.
Analysts have been trending bearish towards the company. The consensus rating is a Hold, but that comes with seven Sell ratings, nearly a third of all the ratings offered. Plus, on Feb. 13, BMO Capital Markets downgraded the stock from Outperform to Market Perform and lowered its price target on DLTR stock to $95 from $110.
Ross Stores: Positive Sentiment but Looks Stretched
Ross Stores Inc. (NASDAQ: ROST) is up nearly 23% in the last three months on the strength of its most recent earnings report. The company reported solid beats on the top and bottom lines backed by strong same-store sales growth. The bullish framing for 2026 is that the company plans to continue expanding into underserved communities.
The company’s upcoming earnings report on March 3 will be the next test of its business model. On the one hand, the retail narrative didn’t change in the holiday quarter, which will be bullish for discount retailers. The issue may be that the stock looks priced for perfection, and the comps to last year will raise the bar to impress investors.
For now, it may be prudent to side with the bulls. Institutional buying was up in the last three months, which was a reversal from the prior quarter. Also, analysts have been raising their price targets on ROST stock. That means the consensus price target of $190.94 may be too low.
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TJX Companies: Could Be Setting Up a Bullish Reversal
Of the three stocks on this list, TJX Companies Inc. (NYSE: TJX) is the one trading below its consensus price target. Analysts remain bullish on TJX stock, and the company has continued to post YOY revenue and earnings growth.
The question at this point seems to focus on the company’s valuation and the potential for more difficult revenue and earnings comps in the coming quarters. Institutions have sold more than they've bought over the last two quarters, which may offset the positive analyst sentiment.
That selling, however, may be due to profit-taking and preparing for the next move higher. Traders aggressively bought the dip in TJX stock at around $147. The question will be if it can make a strong move above its 50-day simple moving average (SMA). The answer may come when TJX reports earnings on Feb. 25.
Retail Stocks Can Also Face Valuation Concerns
The talk about stocks being overvalued has centered on the technology sector. But retail stocks aren’t immune to those concerns. It’s a relative term for sure, but valuation is a concern for each of these stocks.
Ross Stores and TJX fit into the apparel retail sector, which has a sector average of around 9.6x, according to Yardeni Research. ROST and TJX trade at approximately 31x and 36x, respectively. Dollar Tree has a forward P/E around 23x, which is in line with the broadline retail sector average of around 24x.
Investors aren’t getting these stocks at a discount. However, the market acts as a voting machine in the short term. Investors have clearly liked the growth potential of these companies. The question is whether this quarter’s results will affirm that growth.
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