TGT Drops 15% In A Month, Should You Buy The Stock?

We believe there are several things to fear in TGT stock given its overall Weak operating performance and financial condition. This is aligned with the stock’s Low valuation because of which we think it is Fairly Priced. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $40 Bil in market cap, Target provides general merchandise through approximately 2,000 stores and digital channels across the United States, offering a wide range of products to customers nationwide.

[1] Valuation Looks Low

This table highlights how TGT is valued vs broader market. For more details see: TGT Valuation Ratios

[2] Growth Is Very Weak

• Target has seen its top line shrink at an average rate of -0.7% over the last 3 years
• Its revenues have fallen -1.5% from $107 Bil to $106 Bil in the last 12 months
• Also, its quarterly revenues declined -0.9% to $25 Bil in the most recent quarter from $25 Bil a year ago.

This table highlights how TGT is growing vs broader market. For more details see: TGT Revenue Comparison

[3] Profitability Appears Very Weak

• TGT last 12 month operating income was $5.4 Bil representing operating margin of 5.1%
• With cash flow margin of 6.0%, it generated nearly $6.4 Bil in operating cash flow over this period
• For the same period, TGT generated nearly $3.9 Bil in net income, suggesting net margin of about 3.7%

This table highlights how TGT profitability vs broader market. For more details see: TGT Operating Income Comparison

[4] Financial Stability Looks Strong

• TGT Debt was $20 Bil at the end of the most recent quarter, while its current Market Cap is $40 Bil. This implies Debt-to-Equity Ratio of 49.2%
• TGT Cash (including cash equivalents) makes up $4.3 Bil of $58 Bil in total Assets. This yields a Cash-to-Assets Ratio of 7.5%

[4] Downturn Resilience Is Weak

TGT has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• TGT stock fell 60.6% from a high of $266.39 on 16 November 2021 to $105.01 on 6 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $177.82 on 1 April 2024 , and currently trades at $88.93

 
2020 Covid Pandemic

• TGT stock fell 29.0% from a high of $128.21 on 1 January 2020 to $91.04 on 25 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 4 August 2020

 
2008 Global Financial Crisis

• TGT stock fell 63.8% from a high of $70.14 on 13 July 2007 to $25.37 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 25 April 2013

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read TGT Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.