Jim Cramer doesn’t only recommend growth stocks. He also looks for value stocks that trade at a discount relative to their historical valuations and the S&P 500. He recently pinpointed Target (NYSE:TGT | TGT Price Prediction) as one of those companies and recommended it as a stock to buy
Although Target is cheap, its price is justified. Dimming growth prospects and rising competition are some of the headwinds that have hurt this company in the long run, and they seem to be getting worse. These are some of the reasons why investors may want to avoid Target stock.
The Dividend Increase Was Low
Target recently announced a 1.8% dividend hike, which increased the quarterly dividend from $1.12 per share to $1.14 per share. It’s the company’s 54th consecutive year of boosting the dividend.
The issue with a low dividend growth rate suggests that there isn’t much wiggle room for higher dividends. Consider that Walmart (NYSE:WMT), one of Target’s biggest competitors, hiked its dividend by 13% this year. You can’t fake dividends. They come from retained earnings on a company’s balance sheet. If you hike the dividend too much, you can risk not having enough profits to cover the dividend payments. That’s why it is concerning that Target is doing the bare minimum to maintain its streak of dividend hikes.
Sales Keep Dropping
It’s never good to invest in a sinking ship. While Target isn’t in danger of going out of business, the company’s recent history of declining year-over-year sales paints a troubling picture for its stock. For instance, the company’s fiscal 2024 sales dropped by 0.8% year-over-year. That also included a 3.1% drop in the fourth quarter of that year. Net income dropped by 20.2% year-over-year.
This trend hasn’t improved. Sales dropped by 2.8% year-over-year in the first quarter of fiscal 2025. Target expects a low-single digit year-over-year decline in sales throughout fiscal 2025. Meanwhile, Walmart reported revenue growth in fiscal 2024 and the first quarter of 2025.
Target’s series of political blunders are contributing to declining sales. Walmart and Target have made similar moves over the years, but Target’s more vocal political stance resulted in more scrutiny and boycotts. Conservatives boycotted Target in droves when it had a prominent Pride Month section. Now, the company is facing more boycotts as it pulls back on DEI support and merchandise. Target is caught between a rock and a hard place as it tries to please both sides. However, in this context, pleasing one side often means alienating the other, and Target has been seeing this effect on its sales.
Rising Competition
Walmart is always the big giant when it comes to competition, and the global retailer has been eating some of Target’s lunch. However, it’s not just Walmart. E-commerce giants like Amazon (NASDAQ:AMZN) also continue to grow faster than Target, and international options like Shein and Temu offer prices that Target can’t match.
Target’s recent politics over the past few years are one reason for people to shop elsewhere. While corporate giants like Walmart have an easier time getting away with politics, Target isn’t big enough. You never want to give people reasons to do business with a competitor, and when people look beyond Target, some of them are finding more attractive options.
Target faces a long-term downtrend that makes it a sell, even with the high yield. Shares are down by 28% year-to-date and have had a relatively muted recovery compared to other stocks amid easing trade tensions. Target stock is also down by 17% over the past five years.
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