Target (TGT +4.53%) saw revenue take off in early pandemic days as the company won customers over with its practical contactless pickup and delivery offers. In fact, the retailer has grown revenue by more than $30 billion over the past five years, and the good news is it's maintained those annual gains.
Unfortunately, though, I also have some bad news for you: At the same time, Target failed to keep the growth going as various challenges emerged -- from theft in some of its stores to the impact of rising inflation on customers' buying power. All of this has hurt Target's earnings performance quarter after quarter. The company even launched an enterprise acceleration office this year to try to turn things around.
Against this backdrop, how has Target stock done for investors? Let's find out.
Image source: Target.
Target's declining sales
As mentioned, many elements have weighed on Target's earnings in recent quarters, but one significant problem has been the fact that consumers have favored essentials over discretionary purchases -- and this has benefited companies that depend more on grocery for revenue, such as Walmart. Meanwhile, Target has seen its momentum greatly slow. For example, third-quarter net sales fell 1.5%, and earnings per share also declined. And the company maintains its fourth-quarter forecast for a low single-digit decrease in sales.
So, how has this affected the share price? Over the past one-year, three-year, and five-year periods, Target stock has underperformed the S&P 500 -- shares of the retailer have fallen 26%, 41%, and 42%, respectively, over those periods as the S&P 500 soared. These returns include the company's dividend payments.
NYSE: TGT
Key Data Points
But before you give up on the idea of buying or holding Target stock, it's important to note a couple of things. Target has been going through a difficult period, but the company has recognized the problems and has taken action to address them. For example, Target is reducing in-store fulfillment in locations with high foot traffic to focus on better serving customers in those stores, and Target plans on opening more large store formats as sales in those types of locations have surpassed expectations.
A big change ahead
Target also is undergoing a management change, with current chief operating officer Michael Fiddelke set to take over the chief executive officer role on Feb. 1.
Finally, though Target stock has disappointed investors in recent years, that doesn't mean the stock will continue to underperform the benchmark. Some companies see their shares stagnate or fall for a number of years, then recover and go on to advance after making moves to improve their businesses. Target already has many points working in its favor, and has reached a clear transition point -- so now could be a great time to get in on the stock and potentially benefit over the long term.
