Target Corp (TGT, Financial) has seen a daily gain of 1.58%, but a 3-month loss of 19.5%. Its Earnings Per Share (EPS) stands at 7.28. These figures raise an intriguing question: is Target (TGT) significantly undervalued? This article aims to answer this question by analyzing Target's valuation. We invite you to read on for a comprehensive assessment.
Introducing Target Corp (TGT, Financial)
Target, the nation's sixth-largest retailer, prides itself on offering a gratifying in-store shopping experience and a wide product assortment at competitive prices. From trendy apparel and home goods to household essentials, Target's upscale and stylish image has cemented its position as a top U.S. retailer since the 1990s. Today, Target operates over 1,900 stores in the United States, generating over $100 billion in sales and fulfilling over 2 billion customer orders annually. With a current share price of $108.38, Target has a market cap of $50 billion. However, the GF Value estimates the fair value at $227.65, indicating that the stock may be significantly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Target's stock shows every sign of being significantly undervalued according to the GF Value. As such, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength of Target
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to review a company's financial strength before deciding to buy its stock. Target's cash-to-debt ratio of 0.09 is worse than 81.64% of 305 companies in the Retail - Defensive industry. GuruFocus ranks the overall financial strength of Target at 6 out of 10, indicating that the financial strength of Target is fair.
Profitability and Growth of Target
Investing in profitable companies carries less risk, especially if those companies have demonstrated consistent profitability over the long term. Target has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $108 billion and Earnings Per Share (EPS) of $7.28. Its operating margin of 4.36% is better than 63.99% of 311 companies in the Retail - Defensive industry. GuruFocus ranks Target's profitability as strong.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Target is 15.7%, which ranks better than 82.99% of 288 companies in the Retail - Defensive industry. The 3-year average EBITDA growth rate is 0.2%, which ranks worse than 73.54% of 257 companies in the Retail - Defensive industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) is another way to assess its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Target's ROIC is 10.05, and its WACC is 8.67.
Conclusion
In summary, the stock of Target Corp (TGT, Financial) shows every sign of being significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 73.54% of 257 companies in the Retail - Defensive industry. To learn more about Target stock, you can check out its 30-Year Financials here.
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