How Long Can Target Stock Continue To Crush Amazon, Walmart, and Costco?

In recent years, three major retailers have soared. Walmart, Amazon, and Costco have climbed -- Walmart in the triple-digits and the other two in the double-digits -- as customers rushed to them for deals on their everyday needs as well as discretionary purchases. One big name, however -- another company selling the same product categories – has been missing from that list.

And that was Target (NYSE: TGT). Though Target saw revenue soar in early pandemic days, the company struggled to grow in the years to follow. This happened amid a variety of challenges, from theft in its stores to inventory problems. All of this impacted the stock price, leaving Target down 40% over the past five years.

But this year may mark an important turning point. Longtime Target executive Michael Fiddelke took over the role of chief executive officer and put into place a plan to spark long-term growth. Investors seem to like the progress so far as the stock has soared more than 40% this year -- that's compared to gains of 10% and 3% for Costco and Walmart. And Amazon stock has advanced less than 1%.

How long can Target stock continue to crush its retail peers? Let's find out.

Image source: Getty Images.

Target's tough times

As mentioned, Target offered investors a bumpy ride over the past few years. Shoppers complained about long wait times at the register and a lack of certain items in the stores. Theft in some stores also weighed on earnings. Meanwhile, during times of increasing inflation, shoppers more easily turned to value-focused options such as Walmart.

It's important to remember a few very positive points, though. Target grew revenue by more than $20 billion from 2020 through 2022 -- and while it's failed to increase revenue further, it's been able to maintain the gains, with annual revenue of a little over $100 billion.

TGT Revenue (Annual) data by YCharts

Target also made impressive gains in its digital business and in in-store fulfillment -- the company generally relies on its stores to fulfill orders rather than shipping from a warehouse. Finally, Target has built out a solid array of about 40 owned brands -- they bring in more than $30 billion in annual revenue. These are important as owned brands are higher-margin for a retailer than national brands.

All of these points are a great starting point for a turnaround -- and that is what might be taking place right now. Fiddelke's plan involves overhauling in-store displays, strengthening the assortment of products, training employees to deliver a better guest experience, and making more use of technology like AI to improve the overall Target experience.

Target's recent successes

In the first quarter, Target reported several successes. Product innovation helped drive revenue growth, generating a 6.7% increase to more than $25 billion. And the retailer saw growth in both physical stores and digital sales -- and growth across all six merchandise categories. The company also reported improvements in product availability in stores.

Based on these results, Target increased its full-year revenue forecast by two percentage points, with expectations for a gain of about 4%. And Target forecasts earnings per share at the high end of its earlier $7.50 to $8.50 range.

The company has noted that the second quarter's comparison period will be more difficult than the "year-earlier" period for the first quarter. And Target also is monitoring consumer sentiment as it remains close to a record low. These elements could prove to be headwinds in the second quarter. Meanwhile, it's important to note that Target is very early in its recovery story, so we could see ups and downs in the months to come -- and it may take a few quarters for Target to deliver significant results.

So, now, let's get back to our question: How long can Target stock continue crushing Amazon, Walmart, and Costco? Target's recovery has a lot farther to go, meaning it's not too late for investors to get in on the stock and ideally accompany Target as it announces progress and earnings growth in the quarters to come.

Meanwhile, Target is considerably cheaper than its retail peers.

TGT PE Ratio (Forward) data by YCharts

All of this supports the idea of buying Target stock right now and holding on as the company's recovery unfolds. And that means Target could easily continue outperforming its fellow retail giants at least in the months to come.

Adria Cimino has positions in Amazon and Target. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.