If you’re shopping for a retailer that will deliver revenue and share performance to your portfolio, you may be thinking of Target (NYSE:TGT). The company has proven itself over time — but it truly has blossomed over the past year. The coronavirus pandemic meant shoppers flocked to Target for essentials and for the company’s quick and contactless pickup options.
But will this tough-times star deliver when times are better — and over the long term? Let’s take a look at everything you need to know before buying shares of this retail player.
Target’s 2020 earnings report is enough to wow any investor. The company reported sales growth of more than $15 billion. That’s more than the previous 11 years combined. Digital sales and same-day services — these are Target’s delivery and pick up options — drove the gain. Target’s digital sales climbed 145% last year. And same-day services increased 235%.
But Target’s success didn’t happen overnight. The company experienced rough patches a few years ago. A data breach in 2013 and Target’s struggles in the Canadian market weighed on the company’s financial performance. Target eventually closed its Canadian stores. Meanwhile, the retailer ramped up its digital business and delivery options. Target launched its first same-day service — order pick up — about five years ago. And the company acquired Shipt to boost its delivery capabilities. Last year represented the seventh year of digital sales gains of more than 25%.
Even with the rough patches and investment to ramp up digital, Target’s revenue and profit generally have grown over time.
TGT Revenue (Annual) data by YCharts
That’s positive. Still, some investors may worry that revenue and profit will stagnate moving forward. The concern is customers won’t rely as much on online shopping and contactless pickup as the pandemic wanes. I don’t think this will be a problem for Target. First, research shows e-commerce is here to stay. Consumers plan on shopping more online post-COVID than they did prior to the pandemic, a McKinsey & Co. report shows. The research also showed that new behavior — like opting for contactless pick up — likely will stay around for the long term.
Clues about the future
Target’s own data also look positive for future revenue. Last year, Target said 12 million of its guests became “multi-channel shoppers.” That means they shopped at Target online and in-store. Target also reported that 10 of its owned brands brought in at least $1 billion in sales — and four of those brands generate more than $2 billion in annual sales. Many shoppers return to Target specifically to buy these popular brands.
Another clue that Target’s revenue will continue to climb: First-quarter store sales and digital sales both grew in the double digits year over year. That’s even as more and more people got COVID-19 vaccines and returned to their usual routines.
At the same time, Target isn’t sitting around admiring its successes. Instead, it’s working to grow those successes. The company plans on investing $4 billion annually to expand offerings through its delivery and pick up services, remodel stores, and make getting packages from the store to the customer even more efficient.
The one factor that may make you hesitate about Target is the share price. Target’s shares climbed 38% last year and added another 37% in the first half of this year. And they’ve reached an all-time high . Still, they’re trading at less than rival Walmart when compared to forward earnings estimates.
TGT PE Ratio (Forward) data by YCharts
So, yes, Target’s stock has increased a lot. But if we look at the company’s recent earnings and future potential, there are plenty of reasons for more gains down the road. Especially if your strategy is to buy and hold for a while. All of this means one thing: It’s not too late to get in on this retail success story.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
View more information: https://www.fool.com/investing/2021/07/07/what-you-need-to-know-before-buying-target-shares/