Is Target Corporation (NYSE:TGT) Potentially Undervalued?

Today we're going to take a look at the well-established Target Corporation (NYSE:TGT). The company's stock received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$264 at one point, and dropping to the lows of US$231. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Target's current trading price of US$245 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Target’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Target

What is Target worth?

According to my valuation model, Target seems to be fairly priced at around 16% below my intrinsic value, which means if you buy Target today, you’d be paying a fair price for it. And if you believe the company’s true value is $291.20, then there’s not much of an upside to gain from mispricing. Furthermore, Target’s low beta implies that the stock is less volatile than the wider market.

Can we expect growth from Target?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Target, it is expected to deliver a negative earnings growth of -1.7%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? TGT seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on TGT for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on TGT should the price fluctuate below its true value.

If you want to dive deeper into Target, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Target and you'll want to know about it.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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