Like other retail store chains, Goal (NYSE:TGT) has had to beat inflation and a general sense that the U.S. economy isn’t in perfect condition. Consequently, while the Magnificent Seven technology stocks roared ahead in 2023, Goal stock evidently got left behind.
Unlike Walmart (NYSE:WMT), Goal has a selected problem as over half of its annual sales are in discretionary categories (toys, electronic gadgets, fashion items, etc.). Consequently, Goal is especially vulnerable when shoppers reduce on non-essential purchases during times of persistent inflation.
Perhaps this explains why the market dumped TGT stock yesterday, sending it tumbling 3%. Nevertheless, in the event that they had feared an imminent, disappointing earnings report, then today’s stock traders could also be in for a positive surprise from Goal.
Is Goal stock “deal-worthy”?
Goal is understood for providing good deals on quite a lot of products. In that vein, the corporate introduced its Dealworthy campaign in February, offering nearly 400 deals on basic items. A few of these products cost lower than $1, and most of them are under $10.
In other words, Goal is being proactive in addressing consumers’ concerns about inflation. Yet, that’s not the one likely reason the big-box retailer is offering discounts on a spread of products.
Since Goal’s warehouses were overstocked in 2022, it has needed to take motion to filter a few of its inventory. Having a list glut can hinder a retail chain’s profitability, so it’s a wise move for Goal to supply a broad array of basic items at a reduction.
Speaking of discounts, value-focused investors might ponder whether TGT stock is “deal-worthy.” The evidence says it’s, especially if we apply some commonly cited valuation metrics.
A listing glut can have inhibited Goal’s profitability, nevertheless it appears that the corporate’s earnings have kept pace with its share price. Thus, Goal’s GAAP-measured, trailing 12-month (TTM) price-to-earnings (P/E) ratio of 19.24 is barely more favorable than the sector median P/E ratio of 20.6.
Moreover, Goal’s TTM price-to-sales (P/S) ratio is ultra-low at 0.65, versus the sector’s median P/S ratio of 1.2. Granted, those numbers are subject to vary, especially because it looks like Goal stock will get a bump today. Even with that though, Goal shares should still be inexpensive or “deal-worthy.”
Targeting growth and overcoming inflation
Even when Goal reduced its prices on certain items with the intention to filter its inventory, it still has to beat inflation and budget-constrained shoppers. Nevertheless, it seems that Goal’s latest round of quarterly financial data points to resilient consumers and an equally resilient company.
Within the fourth quarter, Goal grew its revenue 1.7% yr over yr to $31.9 billion, versus the expected $31.8 billion. That’s not an enormous beat, but not less than Goal didn’t disappoint investors on that front.
Here’s where Goal really hit the bull’s-eye though. Impressively, the retailer’s Q4 2023 operating income soared 60.9% yr over yr to $1.9 billion. As well as, Goal’s fourth-quarter 2023 operating income margin of 5.8% represented a notable improvement over the three.7% margin reported within the year-earlier quarter.
Fortunately, the retailer also reported that “shrink costs were lower than a yr ago.” Within the retail-sales business, “shrink” is a polite way of referring to shoplifting, so perhaps Goal is successfully addressing the persistent problem of retail theft.
Goal CEO Brian Cornell celebrated a generally successful quarter for his company, saying, “Our team’s efforts modified the momentum of our business, further improving our sales and traffic trends within the fourth quarter while driving profitability well ahead of expectations.”
Indeed, Goal did manage to beat inflation and deliver a Street-beating quarter of profits. Specifically, the retailer’s Q4 2023 adjusted net earnings increased 57.8% yr over yr to $1.38 billion. This equates to $2.98 per diluted share, which beat the analysts’ consensus estimate of $2.42 per share.
Stifel analyst Mark Astrachan summed up the sense of relief that today’s TGT stock traders are probably experiencing.
“We expect F4Q results and guidance were higher than feared,” Astrachan concluded.
The Stifel analyst also offered a positive takeaway that’s not nearly Goal but pertains to the U.S. retail sector as a complete. Specifically, Astrachan feels that “discretionary spending intentions are improving, including amongst lower-income households.”
It stays to be seen whether Americans’ “discretionary spending intentions” will proceed to enhance throughout 2024. In that case, then TGT stock should maintain today’s upward momentum. On the very least, investors should appreciate the present discount in Goal shares, although they may not be discounted for an excessive amount of longer.
Disclaimer: All investments involve risk. Under no circumstances should this text be taken as investment advice or constitute responsibility for investment gains or losses. The data on this report mustn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.