By Bethany McLean

(FORTUNE Magazine) – On a brutally cold day in January, TJ Maxx on the Avenue of the Americas in Manhattan is bustling. Shoppers paw over racks of Tommy Hilfiger and Polo Ralph Lauren. Dig deeper, and there's a Dana Buchman silk dress (stunning, except it's neon lime green) and a brown Emanuel Ungaro silk skirt (a find if you can squeeze into a size 0). It's business as usual at an off-price clothing store.

Not so at TJX, the world's biggest off-price empire and parent of TJ Maxx. TJX's almost 1,400 stores should rack up 1999 sales of about $9 billion, earnings are growing, and return on equity is approaching 40%. Yet its market value has shrunk from almost $12 billion in April to around $5 billion today; its stock trades at a fire-sale price of eight times earnings, about a third the multiple of the S&P 500. It's a state of affairs that Deutsche Bank analyst Marcia Aaron calls "disturbing."

TJX's track record makes its sagging stock all the more puzzling. CEO Bernard Cammarata, who founded the company in 1976, recently bought his biggest competitor, Marshall's. Now TJX's clout makes it the first call for any manufacturer with excess inventory--a huge advantage in the off-price world. Cammarata even expanded beyond MarMaxx (the company name for Marshall's plus TJ Maxx) into new chains in Canada and Britain and into off-price home fashions, a business that's gained a cult following among devotees of cheap chic. Until this spring, TJX, which saw its stock soar more than sevenfold, from $5 in early 1996 to almost $37 in April, was all the rage on Wall Street.

One explanation is that investors punished TJ Maxx for its peers' mistakes. In May, Loehmann's (immortalized by Erma Bombeck's book All I Know About Animal Behavior I Learned in Loehmann's Dressing Room) filed for bankruptcy; in August, Filene's Basement, the Boston store that invented the industry in 1908, followed suit. Both expanded too rapidly as competitors flooded the field--designers like Donna Karan and Ralph Lauren opened off-price outlets, while stores like Target offered fashionable items at discounts. TJX seemed impervious, but then it stunned the Street with negative same-store sales in November. The stock fell 14%, to around $20.

But the punishment doesn't seem to fit the crime. In fact, in the all-important shopping month of December, TJX ratcheted up same-store sales growth by 4%. As for the Loehmann's and Filene's Basement debacles, industry analysts blame them mostly on bad management and say that TJX could actually benefit by grabbing more market share in the off-price industry, perhaps by buying a competitor. Still, investors seem to have written TJX off.

The real problem: There is nothing wrong at TJX. It's just that there's nothing to make investors believe they must own the stock. That's the difference between shoppers and investors: Big markdowns get shoppers to buy anything, but cheap stocks only seem to get cheaper.

--Bethany McLean