Not long ago, Target (TGT 0.18%) reported its financial results for the fourth quarter of fiscal 2023 (ended Feb. 3). Investors were very pleased with the numbers. As of this writing, shares are up more than 10% from the announcement a couple weeks ago, and they are up 18% in 2024.

Investors might be compelled to rush in and buy this top retail stock with $1,000 right now as it benefits from positive sentiment. Before doing so, however, it's best to gain a more thorough understanding of what's going on with Target. Let's take a closer look at the business.

Latest results

In the most recent quarter, the company reported earnings per share of $2.98, which meaningfully outperformed consensus analyst estimates of $2.42. That figure was also up a whopping 58% year over year. Target is benefiting from fewer markdowns as well as lower freight and transportation costs.

That appeared to be the only good news from the latest report. Nonetheless, it was enough for investors to drive up the share price.

When it comes to the top line, it was a more disappointing story. Revenue increased by only 1.6%, with same-store sales, a key performance indicator for any retailer, decreasing by 4.4%. Both the number of transactions and ticket sizes were down from the year-ago period. Management highlighted macroeconomic factors impacting the way consumers spend, especially on discretionary items.

Looking ahead, investors shouldn't expect things to bounce back so quickly. Executives believe Target will report a 3% to 5% same-store sales drop in the current quarter. They think things will stabilize and improve throughout the course of the year, though.

Investor focus

Over the last five years, Target has produced a total return of 141%, which translates to an annualized gain of 19%. That's a fantastic performance for any investor's portfolio. It exceeds what the broader S&P 500 has been able to do by an extremely wide margin.

But right now, shares look to be fully valued, trading at a price-to-earnings ratio of 19.1. That's a slight premium to the trailing five-year average. And this current valuation incorporates the company's huge income growth last fiscal year.

On the one hand, investors will point to Target's favorable capital allocation policy as a reason to scoop up the stock. The business recently paid its 226th straight quarterly dividend. Just in the past decade, the quarterly payout amount has increased 151%, from $0.43 in Q1 2014 to $1.08 today. There's no doubt that this will continue in the years ahead. The current yield sits at 2.6%, which could be enticing for income-seeking investors.

Target also has nearly $10 billion worth of authorization remaining under its current share buyback program. Michael Fiddelke, the CFO and COO, mentioned on the Q4 2023 earnings call that share repurchases will be a top capital priority going forward.

Despite what appears to be a shareholder-friendly approach to cash management, investors can't ignore just how intensely competitive the retail sector is today. Target is experiencing softer sales demand trends at a time when some of its most formidable rivals, like Walmart, Amazon, and Costco Wholesale, are reporting stronger revenue gains. This is clearly not a good sign.

To its credit, Target just announced a membership program, called Target Circle 360, offering unlimited same-day delivery. And the leadership team is focused on product strategies and introductions that emphasize value and affordability. But again, these two moves will already be met with lots of competition, so I'm not optimistic that they can move the needle for the business.

I can understand why dividend investors would buy Target stock. However, I believe the negative traits hold more weight, so I'm staying away.