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3 Reasons To Avoid TJ Maxx (TJX) After Profits Fall 97%

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

This is a huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

But most only think of investing well. 

Today, I want to show you 3 Reasons To Avoid TJ Maxx (TJX) After Profits Fall 97% so you can continue building your wealth safely.

  1. It’s Got A Lot of Debt

As of the most recent quarter TJ Maxx’s balance sheet is made up of 82.5% of total liabilities.  And its debt to equity ratio is 2.86.

I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term.  This helps insure I lose as little money as possible over time.

Typically, this means I invest in companies that have little to no debt compared to their cash and equity.  For example, I like to invest in stocks that have debt to equity ratios below 1.

This gets us to our next reason to avoid TJ Maxx… Lower sales and unprofitability due to the coronavirus.

2. Its Profit Fell 97% So Far This Year

In the most recent quarterly data shows its profits fell 97% in the first 9 months of 2020 compared to the first 9 months of 2019.

Largely due to store closures… It still has 470 stores closed as of this writing with more likely to follow now that cities and states are reenacting lockdowns as Covid cases rise.

And people shopping less in person even after stores open.

Business segment profits fell 97% to $89 million in the first 9 months of 2020 compared to $3.474 billion in the first 9 months of 2019.

And net profits in the first 9 months of 2020 fell to negative $419 million from positive $3.1 billion in the first 9 months of 2019.

Yes, even though the vaccines as this stage look promising.  It won’t end the pandemic anytime soon.

And these means lower sales and profits for TJ Maxx for a while still.

Plus, its stock is also expensive too.

3. TJ Maxx Is Expensive

As of this writing its P/E is 103.6.

Its P/CF is 11.8.

And its forward P/E is 24.

On all three metrics I look to buy investments below 20 to consider them undervalued.

This shows that TJ Maxx is massively overvalued.

And in investing terms this means TJ Maxx stock does not offer you a margin of safety in investing terminology.

When you invest in stocks that are undervalued and have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning its stock in the coming years.

The inverse of this is also true…

When you invest in a stock that is overvalued and without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

Why is its stock so overvalued?

Because its share price keeps going up due to people continually buying it… Its shares are now more valuable than they were at the beginning of 2020… While its profits fall.

When this happens, valuations go up and stocks become expensive.

With Five TJ Maxx being overvalued it lowers the margin of safety and makes investing in its stock riskier right now.… And it also decreases the investment returns you should expect to own going forward too.

For these reasons of its large debt, cratering profits due to Covid, the pandemic still ongoing, and its high valuation – I recommend you stay away from Five Below stock.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above

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