An inside day for Target says another sell-off looms

Key Points

  • Target shares surged following the Q3 release but are not fairly valued, with the risk of another sell-off. 
  • A better-than-expected quarter is not good, with competitors growing and Target shrinking. 
  • A sell-off is good news for value-minded income investors; Target's cash flow and capital returns are safe. 
  • 5 stocks we like better than Target

Image of Target logo on the side of a store

Target Corporation NYSE: TGT had a much-better-than-expected third quarter (Q3), sending its shares to the highest level in months. The move looked strong at face value and closed near the session's highs, but the bearish signals are already emerging. 

Not only has Target's share price failed to cross a significant resistant point, but the initial surge was followed by an inside day and a doji candle, indicating trouble ahead. 

An inside day is a trading day in which the action is entirely within the previous day's action. This signal can occur at any time and often means little to a market except with other signals and/or at a potential market top or bottom. 

Because the price movement preceding the inside day was so vigorously bullish and the pattern is forming beneath a critical resistance point, it carries a high probability of being bearish because an inside day is a sign of indecision and potential for reversal. 

Target stock is also the most overbought it has been in a year, and it has significant overhead resistance due to the still-30% decline compared to last year's peak prices. 

Target had a better-than-expected quarter, not a good one

Target's move was driven by a better-than-expected quarter, not a good one. The company widened its margin and produced a significant bottom line beat, but it is not in good shape compared to its peers. 

Target outperformed on the bottom line and improved cash flow with inventory reduction, down about 14%, but its business is shrinking while its closest competitors grow


Walmart Inc. NYSE: WMT is growing at a 5% clip and producing solid margins, and it isn't leaning quite so hard into inventory management. Inventory at the world's largest retailer is down only 1.4% because it responded to shifting consumer habits quicker. 

The worst news for Target and another reason why shares are unlikely to rally further is market share losses. Target is losing share to Walmart and off-price retailers like TJX Companies NYSE: TJX and Kohl’s Corporation NYSE: KSS, sustaining solid sales in apparel and home goods, where Target and Walmart suffer. Target's business may stabilize and return to growth, but it will struggle with market share until consumer habits change. 

In the eyes of the cash-strapped consumer, Target is the more expensive upscale version of Walmart and no bargain compared to TJX Companies. 

The analysts support but don't lift the Target market

The analysts' activity is positive following the Q3 release but isn't exactly a catalyst for higher share prices. The takeaway from the chatter is that margin improvement is good, inventory is getting right-sized and right-sided, and there are opportunities for gains in Q4 and next year, but the stock is fairly priced now. 

The revisions include many price target increases and even an upgrade, some price target reductions, and a downgrade. The takeaway from the revision activity is that analysts are holding and supporting the stock but at the low end of their target range. 

The post-release surge in the stock price has the market above the analyst's low target, and there is little in the data to catalyze the market to another run. Most revisions are to levels below the consensus, which continues to trend lower. As it is, the consensus may stabilize near its current level after falling 17% YOY, but assuming it will continue is risky. The holiday shopping season shouldn't be huge, and Target hasn't been the retail store of choice so far this year. 

The technical outlook: Target bottomed, could be retested

While a solid company, Target has some ground to regain. Some risks raise the possibility of its stock price retesting the recent lows. The weekly chart looks strong with a solid green candle, but the daily is not so bullish. The market shows apparent resistance at the critical $120 level, the high set before the pandemic, and momentum isn't all that strong. 

The daily chart shows the market consolidating at the $120 level with an indecisive series of candles and overbought conditions. The market is not guaranteed to fall from this point, but the odds favor another sell-off

Should you invest $1,000 in Target right now?

Before you consider Target, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Target wasn't on the list.

While Target currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

The Next 7 Blockbuster Stocks for Growth Investors Cover

Wondering what the next stocks will be that hit it big, with solid fundamentals? Click the link below to learn more about how your portfolio could bloom.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Kohl's (KSS)
4.1955 of 5 stars
$24.89-2.0%8.04%8.73Hold$24.20
Target (TGT)
4.7507 of 5 stars
$165.37-0.7%2.66%18.52Moderate Buy$181.85
TJX Companies (TJX)
4.1996 of 5 stars
$95.28+0.8%1.40%24.68Moderate Buy$102.19
Walmart (WMT)
4.3817 of 5 stars
$59.87+1.3%1.39%31.29Moderate Buy$61.75
SPDR S&P Retail ETF (XRT)N/A$72.52-0.7%1.79%12.75N/AN/A
Target (TGT)
4.7507 of 5 stars
$165.37-0.7%2.66%18.52Moderate Buy$181.85
Compare These Stocks  Add These Stocks to My Watchlist 

Thomas Hughes

About Thomas Hughes

  • tmhughes.writeon@gmail.com

Contributing Author

Technical and Fundamental Analysis

Experience

Thomas Hughes has been a contributing writer for MarketBeat since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights. 


Featured Articles and Offers

How to Become a "Make Money" Investor

How to Become a "Make Money" Investor

Whether you're a seasoned investor or just starting, this video offers valuable insights into making strategic choices that prioritize long-term growth and stability over short-term gains.

Search Headlines: