Target Corporation: Can TGT Stock Ever Get Back on Track?

Not long ago, Target Corporation (TGT) seemed destined to overtake Wal-Mart Stores, Inc. (WMT) as America’s most popular retailer. Now it’s losing ground to discount retailers and e-commerce conglomerates alike.

Target Corporation: Can TGT Stock Ever Get Back on Track?

And that hasn’t been good for TGT stock.

Target stock is down more than 18% in the last year and has fallen off a cliff in the last two months, nose-diving from $83 to $67. It’s no mystery as to why: Sales have declined year-over-year in each of the last two quarters, and the company lost money in 2015 for the first time in at least a decade.

In-store traffic has fallen off at Target in recent years, and the company hasn’t sufficiently filled the void with a budding digital presence. Online sales accounted for just 3.5% of Target’s total first-quarter sales, down from 5% in the previous quarter. Digital sales did improve 23% from the same quarter a year ago, but that was slower growth than the 38% increase a year earlier. So, digital sales, while growing, are still a very small piece of the Target pie.

Digital Sales Growth the Key to a TGT Stock Rebound

Combine slowing foot traffic with limited online sales, and you get a company that hasn’t exceeded 2% sales growth since 2012 and whose sales have slipped in each of the last two quarters.

With retail consumers gravitating either to e-commerce giants such as, Inc. (AMZN) or eBay Inc (EBAY), or to deep discounters such as Ross Stores, Inc. (ROST) and Big Lots, Inc. (BIG), Target has fallen through the cracks a bit — and TGT stock has suffered as a result.

They’re not alone. The slip in Walmart’s sales the last four years is virtually identical to Target’s, and America’s No. 1 retailer has had even more difficulty convincing its customers to do their shopping on its website — Walmart’s online sales grew by just 7% last quarter, and digital sales represented just 2.8% of the company’s total sales in 2015.

Though not as hopeless as department stores like Macy’s, Inc. (M) and Sears Holdings Corp (SHLD), Target and Walmart are at a clear crossroads. Each has two paths back to meaningful growth: 1) greatly improve their digital sales presence (and its appeal to customers as an alternative to visiting the stores), or 2) significantly reduce prices, which would undoubtedly require some serious cost cutting.

The latter option is more of an obstacle for Target, which according to a 2014 study by the Boston-based Kantar Retail is 3.8% more expensive than Walmart — never mind some of the discount retailers. Target will never compete with the Big Lots and Ross Stores of the world on price, and it has a lot of work to do just to become as cheap as Walmart. So, that’s not a realistic option, at least in the short-term.

Thus, the clearer path back to growth for Target is through e-commerce expansion. It could get there — its 23% online sales growth in the first quarter, though down from a year ago, was still more than triple what Walmart achieved.

And the name Target — or “Tar-jay” as frequent shoppers affectionately call it — still means something in the retail world. As more consumers do their shopping online in the years to come, that name recognition should attract more shoppers to Target’s website.

TGT: A Good Bargain Buy, Not a Long-Term Hold

That said, I wouldn’t add TGT to your long-term, retirement portfolio just yet. Not until the company can figure out how to jump-start sales again. If digital sales growth accelerates and overall sales growth returns to the 3% to 5% range the company enjoyed from 2010 to 2012, I might change my tune.

However, in the short-to-intermediate term, I do think Target stock looks very appealing trading at just 13 times earnings, especially with earnings per share expected to grow nearly 10% in 2016. Add in the 3.5% yield, and TGT looks like more of a bargain buy than many of its products right now.

If you buy TGT stock at current valuations, you’re likely to do quite well in the months, and perhaps year, ahead.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Article printed from InvestorPlace Media,

©2022 InvestorPlace Media, LLC