Target earnings report for Q4 will be released today. The stock has had a bearish outlook and underperformed the S&P and some peers in 2016. Its holiday sales in November and December were not encouraging, leading to a revision in guidance for Q4 and fiscal 2016. However, growth in EBITDA margins and digital sales give reasons for optimism towards future numbers and a relatively lower valuation demand investor attention.

It would pay the investors to look beyond tepid revenue and sales growth numbers. In its last quarter, its gross margins and EBITDA margins both showed a YoY increase of 80bps and 130bps respectively. Its e-commerce sales also showed a jump of 26% in Q3, much larger than the 16% jump in Q2’16. Also, as per Morningstar, the stock is currently valued at 12 times P/E, which is a lot less than the S&P P/E of 21 and industry average of 17.

In the upcoming report, investors could consider understanding digital channel expansion and also the performance of smaller format stores as areas of future revenue growth. The company initiatives around technological advancements, developing new and flexible store formats, attempts at improving customer experience could contribute to driving long-term growth.
Is investor pessimism about $TGT’s performance justified?

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