What about Target?
Target Corporation (NYSE:TGT) is another substantial retailer that operates mainly in the U.S. market. Target’s revenue has been growing steadily and the growth rate is improving every year, which I believe is a very good sign. The reasons for improvement in revenue are its merchandise assortments, convincing pricing and marketing strategy. The company’s P-fresh remodel program and Pharmacy rewards program are worth mentioning in this regard. Further, to create a loyal customer base, the company’s 5% REDcard Rewards program for their cardholders is also showing results.
Canada opens up new avenues for the company, as 70% of the Canadian population knew Target Corporation (NYSE:TGT) as a brand even before it started its operations there. This is a good sign and will make the company’s penetration in Canada easy. Currently, Target’s 24 stores have generated $86 million in sales in its last reported quarter with a gross margin rate of 38.4%, far better than the 30.7% achieved in the U.S. Spreading its operations in Canada and as it has planned, in Latin America, will only add to its top and bottom line and provide the benefit of diversification.
The company currently returns decent cash to its investors, as it repurchased shares worth $547 million and paid dividends totaling $232 million, which amounts to a yield of 2.4% on current prices. The company is currently trading at 17 times its earnings and looks fairly valued. Further, with a PEG ratio of 1.5, comparatively lower than both its peers, the company is expected to offer better growth possibilities.
Bottom line
Costco Wholesale Corporation (NASDAQ:COST) does not represent a good investment opportunity as it is trading well over its peers and its own previous averages. The company no doubt represents a strong business model, but a correction in its share price is necessary for it to become a good investment candidate. As for Wal-Mart Stores, Inc. (NYSE:WMT), if investors expect an overnight capital gain then they should search elsewhere, otherwise with robust dividend and share buybacks along with decent capital appreciation, the company should prove to be a good fetch. As Target Corporation (NYSE:TGT) carries better margins and has started diversifying too, it comes across as a good investment to me.
pranay agrawal has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST). The Motley Fool owns shares of Costco Wholesale.
The article This Stock Is Going Strong originally appeared on Fool.com.
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