The COVID-19 pandemic decimated sales and earnings for numerous retailers last year, while unleashing tremendous growth for a select few. Target (TGT 1.55%) was one of the biggest beneficiaries. During fiscal 2020, revenue surged 20% to $93 billion.

All told, Target grew sales by over $15 billion last year, more than in the prior 11 years combined. Much of this growth took analysts by surprise, allowing the discount retail giant to post a string of massive earnings beats.

Target's momentum continued in the first quarter, even as it started to face tougher year-over-year comparisons on the top line. But with Target stock having rallied 76% since the beginning of 2020 -- recently reaching a new all-time high -- the key question is whether the company will continue delivering strong revenue and earnings growth in the years ahead. Let's take a look.

TGT Chart

Target stock performance, data by YCharts.

Another massive earnings beat

Target has beaten analysts' earnings-per-share estimates every single quarter over the past year, and it surpassed the analyst consensus for EPS by more than $1 twice in the last three quarters of fiscal 2020. It repeated that feat in the first quarter of fiscal 2021.

Comparable sales surged 22.9% last quarter, which marked an acceleration from Target's fiscal 2020 growth rate. That was especially impressive because this result built upon a 10.8% comp sales increase in the prior-year period. Whereas digital sales drove the bulk of Target's growth last year, in-store sales took the lead again last quarter, soaring 18% on a comparable basis. Total revenue reached $24.2 billion, up 23.4% year over year.

Lower markdowns and a favorable merchandise mix caused gross margin to jump by nearly 5 percentage points, reaching 30%. Meanwhile, Target was able to leverage its operating expenses because of the strong sales growth. Including depreciation and amortization, operating expenses decreased to 21.1% of sales from 23.6% sales a year ago.

The net result was that Target's operating margin quadrupled to 9.8% from 2.4% in the prior-year period. Adjusted EPS grew more than sixfold to $3.69, blowing past the average analyst estimate of $2.25.

Management expects more growth

Target will face even tougher comparisons for the rest of fiscal 2021, as comparable sales grew more than 20% in each of the last three quarters of fiscal 2020. Nevertheless, the company expects to report mid- to high-single-digit comp sales growth this quarter, with single-digit sales growth continuing in the second half of the year.

The exterior of a Target store

Image source: Target.

Management also estimated that Target's full-year operating margin would be likely to reach 8% "or somewhat higher." That would mark a solid increase from its fiscal 2020 operating margin of 7%, although it would be a step down from the 9.8% margin it logged last quarter.

Following the stellar earnings report and strong guidance, analysts boosted their full-year EPS estimates to an average of $11.30 from $8.93 previously. For fiscal 2022, the analyst consensus now calls for EPS of $11.57, up from $9.76 before Target reported its earnings.

Will the good times last?

While Target has reported impressive results since the pandemic began, the company wasn't growing very quickly before 2020. This raises a key question for investors: To what extent did the pandemic permanently change consumer behavior -- and to what extent is Target still benefiting from short-term changes in shopping patterns?

Target's wide array of affordable, high-quality private-brand items differentiates it from rivals, giving it a durable competitive advantage. Yet convenience was likely the biggest driver of its massive success in 2020. Many people tried to consolidate shopping trips during the pandemic. At Target, they could buy clothes, toys, and home furnishings during a trip to stock up on groceries and other essentials.

A Shipt shopper placing items in a Target shopping cart

Image source: Target.

As the pandemic fades, consumers will start to make more shopping trips, enabling some retailers to regain market share they lost to one-stop shops like Target last year. For example, while apparel sales surged more than 60% at Target last quarter, Kohl's reported even faster growth.

For now, robust consumer demand and lingering coronavirus concerns are driving continued growth at Target. Over the next year or two, though, consumer spending will normalize and department stores and apparel specialists should be able to claw back some -- but probably not all -- of the market share they lost during the pandemic.

In short, the pandemic has permanently improved Target's prospects, but its current level of market share and profitability may not be sustainable. That makes Target stock appear somewhat overpriced after its big 2020 rally.