How Target Stock Can Fall 50%?

Target (NYSE: TGT) has already fallen roughly 40% over the past year. That’s a painful move, but not entirely surprising. Earnings growth has stalled, competition is intensifying, and the company is preparing for a leadership change. Q2 2025 brought a modest earnings beat, yet the bigger picture is still one of sluggish sales and margin erosion.

Why Another 50% Drop Is Possible? Target’s history in downturns should give investors pause. The stock dropped 60.6% in the 2021–23 inflation shock, compared with a 25.4% decline for the S&P 500. It fell 29% during Covid, slightly better than the market, but in the financial crisis, it lost 63.8% versus 56.8% for the S&P. In short, Target has a track record of underperforming when consumers pull back.

The stock is down over 10% in the last month. Could it fall further? Yes. In our view, three drivers could combine to push shares toward $45—a decline of about 50% from current levels: revenues, margins, and valuation.

Target isn’t without recovery potential, but its history, current fundamentals, and relative positioning suggest the downside case deserves serious attention. That said, investing in a single stock carries high risk. The Trefis High Quality Portfolio is designed to reduce stock-specific risk while giving upside exposure. Separately see, What’s Next For ANF Stock?

Image by ElasticComputeFarm from Pixabay

There’s No Guarantee Of A Revenue Rebound

Target’s sales have been shrinking. Over the past three years, revenue has declined at an average rate of 0.3%. FY 2024 came in at $106 billion, down 0.7% from the prior year. The most recent quarter saw another 0.8% drop. For more details see: TGT Revenue Comparison

Why? Discretionary demand remains weak. Inflation has pushed shoppers toward value, favoring Walmart (NYSE: WMT) for groceries and Costco (NASDAQ: COST) for bulk purchases. Target’s exposure to apparel, home goods, and electronics—categories under pressure—has made matters worse. Inventory missteps in 2022 forced aggressive markdowns, damaging both sales momentum and profitability. Digital growth, once a strength, has slowed since the pandemic.

The upcoming CEO transition in FY2026 introduces execution risk. The planned end of the Ulta partnership removes a traffic driver in beauty. Meanwhile, Walmart and Costco continue to capture share in grocery and traffic, leaving Target squeezed in the mid-market. Together, these pressures weigh on comps, brand relevance, and digital adoption—key inputs to long-term growth expectations.

Margins Can Contract Further

Profitability is sliding as well. Operating margin averaged 5.4% over the past year, with free cash flow margin at 6.2% and net margin at 4.0%. These levels trail broader retail benchmarks.

Why? A sales mix shift toward lower-margin essentials, ongoing cost inflation, and persistent shrinkage have all weighed. To protect traffic, Target has leaned on promotions, cutting into pricing power. Gross margin was 29% in Q2, down from 30% last year. A drop back toward pandemic lows of 25–26% would take roughly 40% out of operating income.

How Does This Impact Target’s Valuation? 

At today’s price of $92 per share, Target faces significant downside risk if fundamentals weaken. Suppose revenues shrink by about 2% annually through 2026, discretionary spending remains muted, and gross margins slip back to 25–26% (from 29%) under pressure from markdowns, wage inflation, and shrinkage. In that scenario, operating income could contract by roughly 40% versus FY2024 levels. Net income would likely reset from $4 billion ($8.86 per share) in 2024 to about $2.2 billion ($5 per share) in 2026—a 45% drop.

Markets rarely reward shrinking earnings. Should sentiment sour and investors re-rate Target closer to struggling department stores at 8x earnings—down from the current 11x multiple—the implied equity value would be roughly $45 per share. That represents about 50% downside from today’s levels.

Timing is uncertain. This could play out over two years or four—but the risk is real if sales and margins continue to erode while competitors extend their lead. The upcoming third-quarter results will be an early test: any stabilization in comps or gross margin could ease pressure, but if weakness persists, investor skepticism is likely to grow.

Progress may take time, but patience should pay off. Target’s edge is its affordable, style-focused private labels. By revitalizing them through stronger merchandising and digital execution, the company has a clear path back to success. Our analysis indicates that a positive outcome is likely, albeit one that may require investors and customers to take a long-term view.

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