Yahoo Finance Should Value Investors Pick Target (TGT) At Present?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Target TGT into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Target has a trailing twelve months PE ratio of 17.2, as you can see in the chart below:
Image Source: Zacks Investment Research
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 23.8. If we focus on the long-term PE trend, its current PE level puts it above its midpoint over the past five years.
Image Source: Zacks Investment Research
Further, the stock’s PE also compares favorably with its sector’s trailing twelve months PE ratio, which stands at 28.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
Image Source: Zacks Investment Research
We should also point out that Target has a forward PE ratio (price relative to this year’s earnings) of just 16.7, so it is fair to say that a slightly more value-oriented path may be ahead for TGT stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Target has a P/S ratio of about 1.1. This is a lower than the S&P 500 average, which comes in at 5 right now. We can see in the chart below, this is above the highs for this stock in particular over the past few years.
Image Source: Zacks Investment Research
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Target currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes TGT a solid choice for value investors, and other key metrics makes this pretty clear too.
Additionally, the PEG ratio (another great indicator of value) comes in at 1.2, (which is somewhat better than the industry average of 1.9). Also, the P/CF ratio (another great indicator of value) comes in at 15.2, (which is somewhat better than the industry average of 16.2). Clearly, TGT is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Target might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of C and a Momentum Score of A. This gives TGT a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been discouraging at best. The current-quarter and the current-year have seen one upward and three downward estimate movements over the past two months.
As a result, the consensus estimate for the current quarter has decreased by 2.4% in the past two months, while that of current year has remained unchanged. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Target Corporation Price and Consensus
Target Corporation price-consensus-chart | Target Corporation Quote
This bearish trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Target is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a solid industry rank (top 32%), the company deserves attention right now. However, a Zacks Rank #3, it is hard to get too excited about this company overall. Also, over the past year, the broader industry has clearly underperformed the market at large, as you can see below:
Image Source: Zacks Investment Research
So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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