Target (TGT): What Happens When the Selling Stops
Why This $95 Stock Might Be a $160 One in Hiding
From $268 to $95.
That’s how far Target has fallen since its 2021 peak — a nearly 65% drawdown that looks, at a glance, like a broken business. But the stock chart doesn’t tell the full story. Because while the market kept selling, the business kept adapting:
It fixed its inventory problems.
It brought gross margin back to 28%.
It scaled digital sales to nearly 20% of total revenue.
And it transformed its nearly 2,000 stores into same-day fulfillment hubs — competing not just with Walmart, but Amazon.
This isn’t another department store getting e-commerce’d into irrelevance. Target made it through that war — and came out stronger. Yet the market still prices it like a dying mall anchor.
At today’s levels, you’re buying a $107 billion revenue business for 10.7x earnings — with a 4.5% dividend, $40 billion in owned real estate, and a margin recovery already in motion.
That’s not a speculative bet. It’s a valuation disconnect.
And for investors willing to be patient, that disconnect is the entire opportunity. Especially if you’re building exposure the way I am — using puts, not cash, and stacking ownership over time.
The Setup: Why Target Looks Broken (But Isn’t)
At first glance, the chart tells a simple story: Target peaked at $268.98 in November 2021. Today, it trades around $95 — a 65% drawdown that suggests something broke.
But the market’s narrative doesn’t match the company’s facts.
Yes, Target got hit in 2022. Inflation squeezed consumers, discretionary spending collapsed, and Target’s own inventory missteps forced heavy markdowns. Gross margins dropped to 23.6%, and the stock unraveled.
But since then? Margins have recovered. Inventory is clean. Store traffic is stabilizing. Digital sales are growing again. And operating cash flow last year more than doubled.
Meanwhile, Wall Street hasn’t noticed — or doesn’t care. Target now trades at just 10.7x trailing earnings, well below its 5-year average of 16–18x, and far cheaper than peers like Walmart (~23x) or Costco (~34x).
It’s not priced like a $100 billion revenue business. It’s priced like it’s in terminal decline.
And that’s the disconnect.
Because this isn’t Macy’s. It’s not Bed Bath & Beyond. Target didn’t get Amazon’d. It adapted. Its digital sales now account for nearly 20% of revenue. Nearly every online order gets fulfilled through its store network — lowering cost and boosting speed. Same-day fulfillment (Drive Up, Shipt) now powers more than a third of digital revenue. And its app sits in the pockets of 30 million Americans.
This isn’t a legacy retailer trying to play catch-up. It’s a modern, omnichannel operator that’s already done the work. The results just haven’t shown up in the stock yet.
The Core Business Still Works
This isn’t a company in secular decline. Over the last decade, Target has quietly grown revenue from $71 billion (2014) to $107 billion (2024) — a ~4% CAGR, despite macro headwinds and consumer volatility. Even with inflation-adjusted spending under pressure, the core engine is still running.
Same-store sales (comps) have been volatile, but the pattern isn’t collapse — it’s normalization. After pandemic-era comps surged +19% and +13% in 2020–2021, they fell -3.7% in 2023 as stimulus wore off and discretionary demand dried up. That’s not a broken business — that’s a reversion.
And while the headlines focused on shrinking foot traffic and markdowns, the mix quietly shifted in Target’s favor:
Essentials and groceries now make up ~50% of total sales — a natural hedge during economic softness.
Beauty and Food & Beverage comped positive in 2024, helping offset softness in home and electronics.
Digital sales now account for nearly 20% of total revenue, up from just 5% a decade ago — a clear sign Target didn’t miss the e-commerce wave.
Importantly, margins are coming back.
After dipping to 23.6% gross margin in 2022, Target has recovered to 28.2% in the latest quarter — not far from its pre-pandemic average. Operating margins have also clawed back to 5.3%, and management is guiding for continued improvement in 2025.
That margin trajectory matters. At scale, even a 50–100 basis point improvement in operating margin adds billions in earnings power. If they reach a 6–7% range again — which they did as recently as 2021 — the earnings story flips quickly.
Add to that their ability to control costs — SG&A held flat in 2024 despite inflation — and you get a business that’s more efficient now than during the stimulus boom.
So no, this isn’t a growth rocket. But it’s a wide-moat operator, with a proven omnichannel platform, clean inventory, and a balanced category mix that can absorb consumer cyclicality.
In a world where most retailers are either dying, overstored, or overleveraged, Target stands out for what hasn’t changed — and what quietly has.
Real Assets, Real Value
Most investors see Target as a retailer. But on the balance sheet, it’s also something else: a quiet real estate empire.
Roughly 90% of Target’s stores are owned, not leased — a stark contrast to peers like Macy’s or department store chains that lease most of their footprint. Add in its distribution centers and owned land, and Target controls an estimated 254 million square feet of property.
That’s not just operational flexibility. It’s hard asset value.
Conservative estimates peg Target’s real estate portfolio around $40 billion, or about $60 per share. At today’s ~$95 stock price, that implies the market is only valuing the entire retail operating business at $35 per share.
Let that sink in: The brand, the stores, the digital infrastructure, the $100 billion in annual sales — all of it is being valued like a distressed department store with no future. Meanwhile, Target’s real estate sits there quietly as a built-in margin of safety.
But this isn’t just about what Target owns. It’s about what it generates.
Operating cash flow: $8.6 billion in 2023
Free cash flow after capex: $3.8 billion+
Dividend payout ratio: ~49% of earnings — not stretched
Dividend yield: ~4.5%, with a 52-year history of consecutive increases
Net debt/EBITDA: ~1.5x, with an A credit rating
That means the dividend is sustainable, the debt is manageable, and the buyback authorization (currently $8.7B remaining) could easily resume once earnings stabilize.
It’s rare to find a retailer with this combination of cash generation, financial discipline, and unlevered real estate backing. Especially one that trades at just 7x EV/EBITDA, while Walmart trades at ~11x and Costco around ~18x.
The market sees earnings volatility. But the balance sheet says something else: this is a business with staying power — and asset support most retailers would kill for.
Valuation and Scenarios
Target’s current valuation looks like a market that’s priced in failure — or at least stagnation. But the underlying math tells a different story.
Right now, Target trades at:
10.7x trailing P/E (based on $8.86 EPS)
~11.9x forward P/E (using midpoint FY2025 guidance of ~$8 EPS)
7.0x EV/EBITDA
~0.53x EV/sales
~4.5% dividend yield, with a 49% payout ratio
Let’s translate that into scenarios.
Bear Case
Consumer spending remains weak, comps stay negative, and margins stall near 5%. EPS dips toward $7. The market assigns a depressed 13x P/E.
Price Target: ~$90
Downside: ~5%, mitigated by dividend yield
Rationale: Prolonged inflationary pressure on essentials and continued discretionary softness
Bull Case
Discretionary demand rebounds, comps turn positive, and Target regains operating margin north of 6.5–7%. EPS hits $10+, and the multiple expands toward 16–17x.
Price Target: $160–170
Upside: ~65–80% from today’s price
Rationale: Retail macro turns, inventory and shrink pressures ease, digital and store traffic both improve
Sum-of-the-Parts Reality Check
Even without a retail turnaround, the $40B+ real estate portfolio alone could justify $60/share in asset value. At $95/share, that implies you’re paying just $35 for the entire operating business — a business that’s still producing billions in cash flow and owns its store network.
In short, the downside is bounded by hard assets and cash flows. But the upside — if margins recover and the market rerates — could be 60–80% or more.
That’s exactly the kind of setup that Collateral Compounding is built for.
Why It Fits the Collateral Compounding Playbook
Let’s be honest: Target probably won’t rip tomorrow.
The main risk here isn’t that the business fails — it’s that the market keeps treating it like it already has. We might sit in a sideways range for months. Maybe quarters. This could be a drawn-out accumulation phase — the kind of grind where nothing happens until suddenly everything does.
But that’s exactly why it fits our strategy.
With Collateral Compounding, we’re not relying on price action to do the work. We’re not calling bottoms or waiting for a breakout. We’re getting paid to patiently build long-term exposure using margin capacity, not cash.
Target is the ideal candidate:
It pays a 4.5% dividend, covered by strong cash flow.
It trades cheap — meaning put premiums offer attractive yield relative to risk.
Its downside is anchored by real estate and essential-goods revenue.
And it’s backed by a brand, an omnichannel platform, and a management team that’s already fixed the biggest problems.
Every time we sell a put on Target, we’re taking the other side of that mispricing. We’re getting paid to accumulate equity in a high-quality business — at prices that reflect none of its long-term strengths.
And if it trades sideways for six months?
Great.
We’ll keep writing puts. We’ll reinvest the premium into stock. We’ll build a full position — slowly, deliberately — while others ignore it. Then when the rerating comes, it’s all upside.
This is what Collateral Compounding is made for: quiet accumulation in overlooked names, while the rest of the market waits for a headline. The disconnect is already here. Our job is to exploit it.
Mispricing Has a Clock. Not a Catalyst.
The market doesn’t need a press release to fix this.
Target doesn’t need a turnaround plan — it already had one. And it worked.
The reason the price hasn’t moved isn’t because the business is broken. It’s because most investors are still looking at the chart instead of the balance sheet. They’re trading headlines. We’re building positions.
This is what accumulation looks like: sideways price, slowly improving fundamentals, and a growing disconnect between what something is worth and what it costs. It’s uncomfortable. It’s quiet. And it’s usually when the best setups take shape.
That’s why we’re not in a hurry. We don’t need a short-term bounce. We just need time. And with the right structure — selling puts, reinvesting premium, compounding into a high-quality name while the market sleeps — we’re using that time to our advantage.
Eventually, value forces recognition. Until then, we’ll keep getting paid to wait.