Target (NYSE:TGT) did it again. 

The big-box chain delivered another stellar holiday sales report. For the November to December period, generally considered the holiday season, Target's comparable sales jumped 17.2%, with in-store sales up 4.2% and digital sales shooting up 102%.

While that growth rate did decelerate modestly from a 20.7% rate reported in the third quarter, it nonetheless shows a "mature" retailer with a business firing on all cylinders and capturing heaps of market share during the crisis.

A Shipt shopper at a Target checkout counter.

Image source: Target.

Let's take a look at some of the highlights:

  • Sales rose both in stores and online, showing that the company was able to bring customers into its stores even as coronavirus cases in the U.S. spiked during the last two months of the year.
  • Sales from same-day fulfillment services (Order Pickup, Drive Up, and Shipt) jumped 193%, showing those investments continuing to pay off. Drive Up sales jumped more than 500%, and Shipt sales surged more than 300% in the period. Those services could prove sticky for customer retention even after the pandemic ends.
  • Ninety-five percent of online sales were fulfilled by Target stores. Store-based fulfillment has been a linchpin of Target's strategy and is a key reason why it's able to generate higher margins than competitors like Walmart and Amazon.
  • Sales rose in all five of its core merchandise categories, and Target gained market share in each one. Home goods and hardlines led the way with comps up in the low 20% range, while apparel had the slowest growth, up in the high single digits. Considering that apparel sales have plunged in the broader retail industry during the pandemic (falling 16% in November), that sales increase constitutes a significant market share gain.

CEO Brian Cornell summed up the performance, saying, "The momentum in our business continued in the holiday season with notable market share gains across our entire product portfolio." Third-party data also showed the broad-based retailer outgrowing its rivals. According to SimilarWeb, a web-traffic tracking service, Target's e-commerce traffic rose 46.6% in November to December, slightly better than Walmart at 46% and well ahead of peers like Amazon, GapKohl's and Macy's.

Why did the stock slide?

Despite those strong results, Target's shares were down by as much as 2% during the trading session Wednesday. The market never gives a direct explanation for stock moves, but we can interpret some of what investors are thinking about this sell-off.

First, though the numbers were clearly impressive, they still represent a slowdown growth that dates back to the previous quarter. Target's comparable sales surged 24.3% in the second quarter, the May to July period, which was a record for the company, and that rate slowed to 20.7% in the third quarter. The holiday sales results indicate that the fourth quarter will again be lower even though Cornell said that sales were off to a strong start in 2021. 

Target investors may also be preparing for a hangover from 2021 results, which will lap a year of pandemic-fueled, double-digit comp-sales gains in each quarter. That means that the fourth quarter will likely be the last report to show comps surging like this. After the stock gained 58% over the last year and is up 12% in 2021 alone, investors seem to be saying strong fourth-quarter growth was expected.

Can the stock keep climbing?

The big question for the holiday quarter now is how did the bottom line perform. Profit growth actually improved in the third quarter even as comp growth decelerated slightly. Adjusted earnings per share (EPS) jumped 105.1% in Q3 following 85.7% growth in Q2, and a potentially bullish Q4 profit quarter is forecast.

Target bulked up on inventory ahead of the holidays, up 11.5% from the year before, but with sales outgrowing inventory, investors shouldn't worry about markdowns impacting profits in Q4, which happens when retailers have too much merchandise. That's another positive sign for profit growth.

What is clear is that Q4 results look poised to blow past analyst expectations again, as the consensus called for just 13.9% top-line growth and for adjusted EPS to increase 34.3% to $2.27. That amount in EPS would be below both its Q2 and Q3 results, which seems like a mistake given that the holiday quarter is its seasonally strongest period.

Those low expectations mean Target stock could benefit from strong bottom-line results when it posts complete Q4 results in late February or early March. As we move into 2021, keep an eye on the bottom-line performance as well. Maintaining comparable sales growth will be difficult as the pandemic fades, especially in categories like home goods and groceries once Americans are able to spend more time out of the house. But bottom-line results will shed light on how Target's market share gains are paying off. If profits keep climbing in 2021, the stock can still move a lot higher from here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.