This Retail Stock May Be an Even Better Buy Than Walmart and Costco Right Now

Investors may be making a big mistake. Costco Wholesale (NASDAQ: COST) and Walmart (NASDAQ: WMT) are great companies. They deliver strong results and have plenty of growth opportunities ahead. But that doesn't mean their stocks are good buys at current price points; paying 40 times earnings or more for companies growing in the single digits can be dangerous, as these are the types of investments that can be vulnerable to significant corrections later on.

Instead, there may be an even better opportunity in the retail space: TJX Companies (NYSE: TJX). The stock hasn't been doing well this year, but with a more modest valuation, it's a more attractive buy than both Costco and Walmart. Here's a closer look at its business and why growth investors shouldn't overlook it.

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TJX provides good value and growth potential

TJX owns T.J. Maxx and Marshalls, which are popular off-price retail stores that are synonymous with value. At a time when consumers may be feeling strapped for cash, these are precisely the types of stores that may do well. TJX's stores allow customers to buy name-brand apparel at far lower prices than at other retailers.

In the first quarter of fiscal 2027, which ended on May 2, the company generated 9% revenue growth, with sales totaling $14.3 billion. Its comparable sales growth was solid at 6%. TJX has earnings coming up on Wednesday, and it may deliver another solid performance. It wouldn't be surprising to see the company's growth rate improve in the coming quarters, as its stores may benefit from increased foot traffic.

Walmart and Costco don't have vastly superior growth rates, yet, judging by their respective earnings multiples, investors might assume as much.

TJX PE Ratio data by YCharts

The stock may be due for a rally

TJX's stock is down 1% this year, but given its potential to generate some strong growth due to adverse economic conditions, it may prove to be a hotter buy, possibly after it releases its latest earnings numbers. It's an underrated growth stock that may have room to rise a whole lot higher in both the short and long term.

While Costco and Walmart may be larger and more diversified businesses, both of these stocks look wildly overvalued. They're good stocks to own for the long term, but I don't think they're good enough that investors should ignore their valuations. TJX, meanwhile, may offer more value for investors, and buying the stock today could yield higher returns; it's the retail stock I'd go with.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, TJX Companies, and Walmart. The Motley Fool has a disclosure policy.