Target Recently Reached a Major Milestone. Is the Stock Finally a Buy?

Shares of Target (NYSE: TGT) have struggled to keep pace with the broader market over the last five years. But the stock's trajectory has changed more recently. Shares are up 25% year to date, even as the market has declined.

What gives?

The company gave investors a bright spot to cheer about when it reported its fiscal 2025 results (a period that ended on Jan. 31, 2026) last month. The big-box retailer's e-commerce business just hit a record share of total merchandise sales, crossing the 20% mark for the first time on an annual basis.

This is good news for investors, as it shows Target is capable of holding its own against Amazon and Walmart -- two retailers that thrive online.

After hitting such an important milestone, is the stock a buy today? After all, despite its strong digital results, overall sales are still struggling.

Image source: The Motley Fool.

Impressive digital momentum

It is hard to overstate just how much Target's digital business has evolved over the last several years. During 2020 -- a year heavily impacted by COVID-related work-from-home trends and government shutdowns -- digital sales penetration peaked at nearly 18%. It was a massive leap at the time.

But Target's recent fiscal 2025 results show that the retailer hasn't just held onto those pandemic-era gains; it has built on them. Target's digitally originated sales in fiscal 2025 represented 20.6% of merchandise sales. And they accounted for 23.7% of fourth-quarter merchandise sales.

What's driving this recent surge in digital engagement? Same-day delivery powered by its Target Circle 360 loyalty grew over 30% year over year in fiscal Q4.

And the company is notably benefiting from another fast-growing driver: the retailer's non-merchandise sales jumped over 25% during the quarter, aided by membership revenue that more than doubled year over year.

The broader growth problem

But the bull case hits a speed bump when you zoom out to look at the company's consolidated top-line trend.

While digital sales are thriving, Target's overall business is shrinking.

For fiscal 2025, the company's net sales decreased 1.7% year over year to $104.8 billion. And the trend didn't improve much as the year closed. Fiscal fourth-quarter net sales fell 1.5% year over year to $30.5 billion, and comparable sales declined 2.5%.

This drop in comparable sales reflects a challenging macroeconomic environment in which Target's customers are pulling back on discretionary items such as apparel and home goods.

So, while Target is executing well in e-commerce and its new membership initiatives, those high-growth areas aren't yet large enough to fully offset the pressure on the core brick-and-mortar business.

Target stock: buy, sell, or hold?

But given its digital momentum, is the stock a buy despite some areas of weakness?

As of this writing, Target trades at a price-to-earnings ratio of about 15. A valuation multiple this conservative arguably does a good job of pricing in the company's current challenges.

And it's worth noting that management actually expects improvement in its overall sales this year. The company forecast net sales growth of just around 2% -- up from a 1.7% year-over-year decline in fiscal 2025.

So, is Target stock a buy?

I think so.

Crossing the 20% digital sales threshold is a major milestone -- and the rapid growth of Target Circle 360 same-day delivery suggests the company can successfully compete with its much larger retail peers in e-commerce and same-day delivery. In addition, the stock's cheap valuation relative to Amazon and Walmart's far higher price-to-earnings ratios does a good job of pricing in Target's more challenging overall sales trends.

Then you have to add in the fact that Target has a solid dividend yield of 3.8% -- a yield that helps pay investors while they wait to see if the company can reaccelerate its business.

Overall, the stock looks relatively attractive here.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Target, and Walmart. The Motley Fool has a disclosure policy.