Target Is Up 56% and Reports Earnings Aug. 19. This Is the Only Reason I'd Need to Buy.
Key Points
In the previous quarter, Target broke a streak of declines by reporting a net sales increase.
The recently struggling retailer and the analysts who follow it expect that trend to continue.
Its P/E ratio and dividend yield may still appeal to investors despite a recent rise in the stock price.
- 10 stocks we like better than Target ›
Target (NYSE: TGT) stock has been on a tear since the end of last year, rising by more than 56% since the beginning of the year. Under new CEO Michael Fiddelke, the company now plans to spend around $5 billion revamping its stores and supply chain.
Investors will get a key update on its progress following its second-quarter earnings report on August 19. I already own the stock myself, but if I didn't, I would need to see one key sign to keep investors buying the stock.
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What Target investors need
In order for investors to believe in Target stock long term, they need to know its recovery is real.
In other words, they need to see signs of continued growth. Target reported 7% annual net sales growth in the first quarter of fiscal 2026 (ended May 2). That came after a long string of revenue declines. Target spent years alienating its investors and customers with chronically high inventories, controversial political stances, and messy stores.
The last earnings report and the aforementioned net sales increase offered hope that Target had finally turned a corner. Now, investors need to know that the increase was not a one-time event and that Target is again becoming a desirable option for consumers.
Both the company and the analysts believe the increases will continue, and it is even betting a chief AI officer will boost growth. Target did not offer specific quarterly guidance, but it expects 4% net sales increases for the year and predicted positive growth in every quarter of the fiscal year. Analysts project a 4% rise in net sales for both the upcoming quarter and the current fiscal year.
It probably helps that Target beat earnings estimates in each of the previous four quarters. Additionally, they can earn a 3% dividend yield on a payout that has risen for 55 straight years, far above the S&P 500's 1% average. Furthermore, investors can still buy Target stock at 20 times earnings, around half of Walmart's 40 P/E ratio.
Assuming Target continues to grow, it could close much of that valuation gap with Walmart. That gives investors the opportunity to benefit from continued stock price growth while earning a significant cash return.
Target stock going forward
If I were considering buying Target stock today, I would need to see that it truly is back on a growth path. Company missteps led to several quarters of net sales declines, but Fiddelke's leadership offered hope that the retail stock had started to reverse that trend.
If company and analyst estimates are any indication, investors could easily be happy with the August 19 report. Considering that investors can earn a considerable cash return and pay a low valuation for the stock, it may pay for investors to buy before the news comes out.
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Will Healy has positions in Target. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.
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