Target stock (NYSE:TGT) was formerly seen as a reliable blue-chip investment for conservative investors. It is one of America’s major physical stores.
It weathered Amazon’s emergence and the accompanying “retail disaster,” raising its payout yearly for over a half-century.
However, Target’s stock (NYSE:TGT) has dropped more than 30% this year as it deals with difficult macroeconomic headwinds. Is the recent severe sell-off a favorable purchasing opportunity for long-term investors, or is it still too early to buy?
Why was Target Stock such a safe bet?
Last November, Target stock (NYSE:TGT) reached an all-time high of $260.85. Investors were encouraged at the time by its comparable-store solid sales growth, steady gross margins, and growing operating margins.
Target’s e-commerce operations also paid off during the epidemic, as digital sales increased dramatically. While a consequence, even as other retailers battled with store closures and weak sales, its overall comps growth surged.
Why did Target Stock struggle this year?
Target’s rise during the pandemic, aided in part by stimulus expenditure, did, however, set it up for difficult post-pandemic comparisons. That downturn was already difficult, but price pressures and supply chain issues compounded it last year.
In three ways, Target stock (NYSE:TGT) was harmed by inflation: It reduced customer spending on discretionary items, increased the company’s freight expenses, and put pressure on it to raise salaries. Disruptions in the supply chain then prevented Target from stocking up on the proper items.
This is a warning indicator if a retailer’s inventory is increasing faster than its sales. Target must clear out undesirable inventory with margin-crushing markdowns to restore equilibrium. As a result, its gross margin fell 670 basis points year on year to 23.5% in the first half of fiscal 2022, while its operating margin fell 650 points to 3.3%. It forecasts the operating margin to normalize and complete the year at roughly 6%, representing a 240 basis-point decrease from 2021.
Is Target Stock too inexpensive to pass up?
Target’s stock (NYSE:TGT) is presently trading at 13 times projected earnings, with a forward dividend yield of 2.8%. Walmart trades at 20 times projected earnings and offers a considerably lower forward yield of 1.7% while facing many of the same near-term inventory concerns as Target.
Target is still a retail survivor, and I expect its growth will level out in the long run as it goes beyond the pandemic, stimulus checks, supply chain concerns, and inflation. Its price will not skyrocket in the following quarters, but its cheap valuation and excellent dividend should make it a safe investment to keep while the bear market continues.
Featured Image – Megapixl © Sepavo
Author Okoro Chinedu 
