Big-box retailer Target (TGT +2.43%) is struggling. Sales growth has stalled out in the last two years, and trailing free cash flow (FCF) is down 13% over the same period.
That wouldn't be so bad if Target faced these soft figures in a vacuum, but that's not the case. Walmart and Amazon have seen double-digit sales growth and generous cash flows while Target slumped.
As a result, Target shares are trading at the bargain-bin valuation of 0.6 times sales or 14 times FCF. It could double in price and still look affordable next to retailer archrivals Walmart and Amazon.
Has the modern market passed Target by, or is the stock primed for a wealth-building comeback? Let's take a look.
Warning signs
Brave Target investors face a few significant issues.
First up, the market really doesn't love this stock in 2025. It's down 5% in the last six months, as of Jan. 30. Walmart soared 45% and Amazon stock gained 29% in the same time span. Target is lagging behind the broader market as well: The S&P 500 stock market index is up by 12%.
And the downtrend might continue for a while. Your average Wall Street analyst places both Amazon and Walmart in the "strong buy" category, while Target only gets a consensus recommendation to "hold."
Moreover, 2.7% of Target's shares are currently sold short by bearish investors. That's not too terrible, but it's more than three times the short-sale percentages seen for Walmart and Amazon.
NYSE: TGT
Key Data Points
The gloomy story continues when I move from Wall Street's market signposts to financial metrics. Revenue growth has been slower than its key competitors' in every quarter since the summer of 2022. The growth rate dipped into negative territory in three of the last six reports. Cash flows and earnings aren't growing.
Lastly, management focused its holiday strategy on thousands of price cuts and promotional deals. To be fair, that page was ripped right out of Walmart's playbook. It's still discouraging to see Target sacrifice the generous profit margins of years past in an effort to kick-start its stalled revenue-growth engines.
Reasons for optimism
It's not the end of the road, though.
The company gave shareholders something to celebrate in January's report on holiday-period sales. Combining November and December into a convenient holiday period, sales rose 2.8% year over year, and e-commerce operations saw a 9% revenue gain. Foot traffic to stores was up, higher-margin product categories like clothes and toys saw what management called "meaningful sales acceleration" from a slow third quarter, and the Black Friday weekend delivered record-setting sales.
In the digital business, its same-day delivery service showed 30% sales growth, and the Target Plus reselling marketplace notched a 50% revenue boost. This fast-growing operation has lots of headroom, representing just 3% of Target's total sales in the two-month holiday period.
So Target has a few promising balls in the air.
Is Target a good stock to buy today?
It's a personal choice whether the company's potential upsides can outweigh its many challenges. At the moment, many investors look the other way, preferring Amazon's and Walmart's proven growth trends over Target's looser turnaround premise.
In my view, the stock may have fallen too far, too fast. The Target brand alone may be enough to carry the company through a difficult era, not to mention its massive store network. These business advantages don't go away in a hurry. The stock is priced for absolute disaster, and all I've seen so far is a modest slowdown.
I can't promise that Target's stock will close the gap to rivals by doubling quickly, but it does look undervalued. The lukewarm analyst enthusiasm and above-average short-seller interest seem misguided. Color me surprised if the stock doesn't outperform the market in the next couple of years.
