Target Stock Is up 63% This Year, and It's Still Cheap
Key Points
With a new CEO and strong efforts in several strategic areas, Target is winning higher traffic and comparable sales.
Store renovations have led to direct results, like a 15% increase in snack sales after the snacks space was upgraded.
Target stock trades at 16.5 times trailing 12-month sales, which is a much cheaper P/E ratio than other retail stocks.
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Investors who left Target (NYSE: TGT) stock for dead have missed out on what's becoming one of 2026's best turnaround stories.
The essentials retailer has dealt with a host of challenges, from inflation putting pressure on its non-essential categories to political public relations messes to increased tariffs. Target stock deflated over the past few years, but its gaining market confidence again, and it's up 63% year to date.
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The market is often wary about recovery stories, since they're rare. But Target's is happening.
Image source: Target.
Things are finally starting to go right
The market was not enthused about the appointment of Michael Fiddelke to the CEO role last year. He's a company insider, and the market was looking for a fresh perspective on the company and its troubles. His recovery plan wasn't especially confidence-boosting either, since it had a whiff of an unoriginal playbook. However, much of the strategy relies on getting the execution right, and management appears to be pulling it off.
There was sustained momentum in the fiscal 2026 second quarter (ended Aug. 1). Comparable sales were up 3.8% year over year, and traffic was up 3.6%. That means more people are coming back to its stores. Much of the growth is coming from digital channels, which had an 8.7% increase in comps versus 2.7% for stores. Same-day options have been a standout for Target throughout its recent problems, and sales increased 25% year over year in the quarter.
There was growth across all six of its categories, with double-digit growth in Fun101 and high single-digit growth in food and beverage and beauty.
One major growth area was store transformation. Target overhauled more stores in this quarter than any other in the past decade, replacing and revamping many areas, including center store grocery assortment. It added extra space for fresh, snacks, bakery, and emerging categories, and snack sales increased 15% after the transition. It also transformed its toy areas, and Fun101, Lego, plush, and Heyday electronics all delivered double-digit comps growth.
It only works, though, if it continues. Chief merchandising officer Cara Sylvetor noted, "These are the kinds of choices we need to make more consistently, staying close to the guest, moving at the speed of culture, and being disciplined about where we invest our space."
The company is also enjoying strength in non-merchandise sales, which grew 20% over last year. These include revenue sources like advertising and its membership program. And it's not just comparable sales. Target opened 17 new stores in the second quarter, and total revenue increased 5.3% over last year.
The future looks even better
Fiddelke noted that there's a ways to go to get back to stability, and there are many signs that it will happen. One encouraging update is how the company is leveraging artificial intelligence to drive sales. It had 3.5 times more direct traffic from external sources like ChatGPT than the year-ago period, and teacher and college wish-list recommendations led to strong digital conversions.
The store renovations demonstrate that it's on the right track, and it's investing in newness, trends, and key collaborations to keep up the momentum. It's launching Target Beauty Studio in 600 stores, and it's redoing other spaces like kids' home and bedding.
Management raised full-year sales growth to about 5%, a full percentage point higher, and earnings per share from a midpoint of $8 to a midpoint of $10.40.
The price is right, too
Target's P/E ratio went as low as 10 recently, and as the stock climbs, it's reached 16.5 at the current price. That still looks like a bargain, especially when compared with competitors Costco Wholesale and Walmart.
TGT PE Ratio data by YCharts
As Target's recovery takes shape, you can still buy it it a bargain price. The company is also a Dividend King, and it's raised its dividend annually for the past 55 years. At the current price, the dividend yields 2.9%, and investors can enjoy dividend and stock growth as Target stock makes its way back up.
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Jennifer Saibil has positions in Walmart. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.
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