Where Will Target Stock Be in 5 Years?

• Target's stock trades nearly 70% below its all-time high.

• The company is struggling with macro, competitive, shrink-related, and politically-driven challenges.

• Its stock looks cheap but might deserve its discount valuation.

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Target (NYSE: TGT), one of the largest retailers in America, was once considered a dependable blue-chip stock for dividend investors. On November 26, 2021, its stock closed at a record high of $238.01 per share, marking a three-year gain of 234%.

Target impressed the bulls with its soaring digital sales throughout the pandemic, the expansion of its private-label brands, and its overall pricing power. The broader buying frenzy in stocks -- which was sparked by stimulus checks, social media buzz, and the growing popularity of commission-free trading platforms -- further inflated its valuations.

After hitting its peak, Target's stock shed more than two-thirds of its value and now trades at around $88 a share. The company lost its luster as it grappled with tough comparisons to the pandemic, rising inventory levels, inflationary headwinds, tariffs, and politically driven boycotts. As it dealt with those challenges, rising interest rates compressed its valuations.

Target's stock now trades at just 12 times forward earnings and pays a high forward yield of 5.2%. It's also still a Dividend King that has raised its payout annually for 54 consecutive years. It takes 50 straight years of dividend increases to qualify for that elite club. Target's low valuation and high yield might limit its downside potential, but can it bounce back and outperform the S&P 500 over the next five years?

From fiscal 2021 to fiscal 2024 (which ended this February), Target's comparable-store sales cooled off significantly from its pandemic-era highs. The inflationary headwinds for consumer spending and the fluctuating tariffs on Chinese goods exacerbated that slowdown. Yet Target continued to open new stores, even as many other retailers shuttered their weaker brick-and-mortar stores, and its gross margins bounced back from a steep post-pandemic drop in 2022.

Data source: Target. FY = fiscal year.

Target is still much smaller than rch rival Walmart, which operates more than 10,750 stores worldwide. The company also only operates its stores within the U.S. and generally targets more affluent and style-conscious consumers than Walmart. That's why it often prioritizes sales of clothing and home decor over essentials and groceries. However, those non-essential products were more exposed to the recent macro headwinds than essential goods.