TGT is overvalued (price $160 vs fair value $93); no buy opportunity; high probability of decline.

Target's shares are experiencing a significant rise as growth returns thanks to the new management. Net sales in the last quarter rose by 5.3% compared to the same quarter last year, with an increase in operating profit margin and an increase in customer traffic to its stores by nearly 4% compared to the same period last year .

Does all of this make Target shares an investment opportunity ? Let's answer this question together. Therefore , we congratulate Target's management on their efforts in revitalizing growth.

As evidenced by the sales peak in 2023, Target's sales experienced a continuous decline until early 2026.

In the last two quarters, Target has successfully revived growth and revised its full-year outlook, now expecting growth of approximately 5% for the whole of 2026. Target's total sales over the past twelve months amounted to $108 billion.

This figure rose from about $70 billion in 2017.

Target was the first company to implement digital transformation. Its e-commerce and same-store sales services have been very popular among consumers since the start of the pandemic.

Buying products online and picking them up from the store, or buying them online and going to the Target car park for employees to deliver the product to your car, was and still is a very common service .

Target was struggling because consumers were looking for more value for their money.

Target offers a premium shopping experience , while consumers' budgets have become limited. Therefore, Target's ability to revive growth under these macroeconomic conditions makes management's current performance look much better.

Target has consistently achieved better profit margins compared to Walmart or Costco, because it offers a high-end shopping experience . Its products are more expensive than those found at Walmart or Costco.

As for Target, its operating profit margin has ranged between 7% and 8% over the past years.

This margin has declined, and therefore the current management is striving to restore profit margins to their historical levels. While Target often approached 8%, during the peak of the pandemic, it approached 9%.

I consider inventory turnover a critical factor when evaluating retailers like Target. Over the past twelve months, Target's inventory turnover rate has been 8.2, which is close to Target's average for this metric over the past decade.

Compared to Walmart and Costco, Target's inventory turnover rate is significantly lower than its peers.

This again points to the strategy being followed. Target aims to sell products at higher prices with a lower turnover rate, while Walmart and Costco aim to sell more products at lower prices with a higher turnover rate.

This strategic decision is the reason behind the decline in Target's stock turnover rate. Target, with its resurgence in growth, has gained investor enthusiasm. Its valuation has increased from a future price-to-earnings ratio of approximately 8 to 16.7.

I had been classifying Target stock as a buy opportunity before the valuation spike, and I only lowered my recommendation to "hold" in the last month or two.

Therefore, I updated my discounted cash flow assessment for Target, and calculated the fair value of the company at $93 per share compared to its current market price of $160.

Therefore, the stock appears to be significantly overvalued, and I believe there is a high probability that it will decline from now on. So, to answer the question I posed in the introduction to the video, do I think Target stock represents a buying opportunity now? I say no.

I updated this rating about a month ago , warning investors that it was overvalued, specifically on August 21. Target's stock has fallen by approximately 3.3% in the past month since I assessed the company, and I believe that this decline is insufficient to justify raising Target's rating.

Therefore, I will repeat my previous recommendation. If you were interested in buying Target stock, you would have waited for a larger drop in the stock price or a significant improvement in the company’s revenue and profits before investing in it.