Target (TGT 0.69%) stock has been a huge disappointment over the past few years. It's more than 50% down from its three-year high, and it doesn't look like the end is in sight yet.
On the one hand, why invest in a stock that's still disappointing? On the other hand, the best time to buy a great stock is when it's down. Nvidia and Amazon also both lost 50% of their value in 2022, and smart investors who saw those opportunities and scooped up shares are already reaping the rewards -- Nvidia stock is up 405% over the past three years, while Amazon has gained 40% since slipping last summer.
Let's see if it makes sense to buy Target stock today.
NYSE: TGT
Key Data Points
Why stay away
Target is underperforming and has been for a while, and that's being reflected in the stock. Customers have been cutting back spending, and even if they're still shopping at Target, they're spending a lot less. While Target has been struggling to demonstrate growth and has reported lower earnings, other discount retailers like Walmart and Costco have been enjoying strong growth.
Target is a little different than these other chains, because their merchandise is more skewed to grocery, while Target's is more skewed to discretionary spending, even though it also sells grocery. These are times when people will of course still spend on food but cut back on new home goods (one of Target's main areas) and other categories of a more optional nature. Target has gone through cycles of heavy discounting to move goods, and that's hurting the bottom line.
There may be other issues cooking. CEO Brian Cornell addressed the tariff issue and cautioned that the situation is "fluid," and that it's working to move around the supply chain to manage through it.
Why buy today
Progress has been unsteady, seesawing between soft and robust quarterly results. The market was disappointed in Target's 2024 fiscal fourth-quarter and full-year (ended Feb. 1) results. Adjusted for the impact of a 53rd week in 2023, full-year sales increased 1% year over year, and earnings per share (EPS) were up 3%. But not adjusted, sales and EPS were slightly down, and the market didn't like that look.
Digital continues to be a standout for Target. Total digital sales increased 8.7% for the full year, driven by a 25% increase in same-day services. Comparable sales were up 1.5% in the quarter but just 0.1% for the full year.
Traffic was up more than 2% year over year in the fourth quarter, implying that customers are still shopping at Target, and while it's uncomfortable to wait for them to spend more, they're likely to when the economic situation improves.
In reference to the tariff concerns, Cornell noted that Target has a long history of dealing with all kinds of economic situations in the past. It's hard to beat a decades-old industry giant that has a proven track record of resilience and success.
Letting your good stocks grow, or holding on to losers?
Investors sometimes make the mistake of holding on to losing stocks in the hope of seeing a turnaround while selling the good stuff while it's high. The flip side of that is panic-selling and getting rid of great stocks that are experiencing short-term pressure. Being a long-term investor doesn't mean holding on to stocks forever that don't have a strong future, but it does mean holding on to winning stocks and letting them keep compounding.
If you already own Target stock, it makes sense to be confident about its future and hold on. Customer loyalty is an important sign of a great business, and Target has a top omnichannel network. Both of these features should bring it into the future.
If you don't own Target stock, now could be a great time to buy. Target stock is down 22% over the past year and trades at a low P/E ratio of 12. Consider that the stock price is trailing progress in revenue and earnings.
The market is pessimistic right now, but eventually, Target should begin to show renewed strength, and the stock should follow suit.
And don't forget the dividend. Target is a Dividend King, and it's raised its dividend for the past 51 years consecutively. That's a hard-earned status that implies incredible reliability. At the current price, Target's stock yields a very attractive 3.8%. Target might not be a top growth stock today, but it's an excellent dividend pick and should reward long-term investors.
