The stock market has been on a bull run for near a 12 months and a half immediately, and whether or not it should proceed is open to debate. Nonetheless, what’s pretty clear immediately is that the markets are a bit overvalued, so investors have to be mindful of stocks with unusually high valuations and the assorted metrics that gauge them, like price-to-earnings (P/E) ratios.

The Shiller P/E ratio, also generally known as the cyclically adjusted P/E (CAPE) ratio, is well above average immediately at 34, up from 28 a 12 months ago in April. It isn’t quite as high because it was in October 2021, when it hit 38, and the market crashed soon thereafter. Nonetheless, it has been moving higher.

Thus, it might be a very good time to hunt down undervalued stocks with robust growth potential, and one great choice to keep watch over is Goal (NYSE:TGT). Here’s why.

Earnings surge on expense reductions

Goal stock is up 12% 12 months up to now, and it still has more room to run given its low valuation and solid earnings potential.

The stock is trading at just 17 times earnings at present, down from about 26 in April 2023. It also has a forward P/E of 17, so it’s anticipated to be value relative to its future expected earnings.

Goal finished the last fiscal 12 months strong, as its earnings increased 57% 12 months over 12 months  to $2.76 per share within the quarter that ended Feb. 3. For the complete fiscal 12 months that ended Feb. 3, Goal posted earnings per share of $8.90 — 50% higher than 2022 — buoyed by an efficiency initiative that resulted in $500 million in savings for the 12 months. A part of that plan included reducing its inventory levels by 12%, which helped reduce freight, supply chain and operations costs. 

Goal isn’t as a result of report its first-quarter earnings until May 22, however the retailer expects it to be the worst quarter of the 12 months, with comparable-store sales anticipated to be down 3% to five% and earnings per share (EPS) between $1.70 and $2.10. That might be down by 10% to twenty% from the previous quarter.

Goal continues to be feeling the consequences of inflation, but for the remaining three quarters of the 12 months, it anticipates year-over-year revenue growth as inflation is predicted to say no while rates of interest drop. For the complete 12 months, the corporate is anticipating revenue growth of 0% to 2% and EPS within the range of $8.60 to $9.60, which on the midpoint can be a few 2% year-over-year increase.

Well-positioned for the long run

Goal has had a pair of inauspicious years by its standards, with inflation taking a bite out of its sales. Nonetheless, even after two of the worst years in recent history, it still has a mean annualized return of about 11% per 12 months as of May 6. Goal has also been in a position to increase its dividend for 53 straight years, making it a Dividend King.

Nonetheless, the retailer has taken advantage of this lull to position itself for long-term growth by reducing its expenses, managing its inventory, and rebuilding its money. In reality, Goal doubled its money from operations to $8.6 billion in 2023. 

This may allow the corporate to execute on its long-range plans over the subsequent 10 years to transform most of its 2,000 stores with the goal of accelerating comparable-store sales within the low-to-mid-single-digit range per 12 months. It’s also planning to construct 300 recent stores which are expected to generate incremental sales of roughly $15 billion annually.

Just this week, Citigroup upgraded Goal to a Buy with a price goal of $180 per share, which can be up one other 12.5% over the present price. Citigroup analyst Paul Lejuez said Goal has emerged as “one in every of the winners throughout the retail landscape” with a possibility to enhance its margins.

Overall, Goal is a consensus Buy amongst analysts from the 36 different firms that cover it, with a median price goal of $190 per share, which can be up 18% over the present $160-per-share price.

Goal stock could see a dip after the May 22 earnings release given the issue it expects this quarter, so investors will probably want to keep watch over that. Nonetheless, even at this current valuation, Goal looks like buy immediately.

Disclaimer: All investments involve risk. On no account should this text be taken as investment advice or constitute responsibility for investment gains or losses. The knowledge on this report shouldn’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.