Investors could be under-appreciating this one opportunity that's already boosting profits for Target's top peers in the retail space.
The words "cheap" and "bargain" might look like synonyms. But as I'm using them, the difference has everything to do with the future. Well-know retailer Target (NYSE: TGT) trades at just 11 times its earnings, which is about 60% cheaper than the S&P 500, which trades at about 28 times earnings, according to YCharts. But it's not a good idea to invest in a stock simply because it looks cheap. If Target's profits drop further, this cheap stock likely isn't a bargain.
In other words, Target stock is "cheap" when compared to the valuation of the S&P 500, meaning it's merely less expensive right now. By contrast, the term "bargain" causes me to consider the quality of the business, not just the price. But it's precisely the quality of Target's business that's in question right now.
Consider that Target's revenue peaked about two years ago, and management expects another low-single-digit decline here in 2025. Moreover, its earnings per share (EPS) peaked three years ago. And this year, management is guiding for EPS of $8 to $10, which is a wide range, reflecting a lot of uncertainty with the business.
The situation is complicated yet my assertion is simple: If Target materially grows its earnings in coming years, then the current price is a bargain. Consider that it looks cheap today based on the currently suppressed earnings. Therefore, things would get quite interesting if earnings went up from here. And believe it or not, Target has low-hanging fruit to increase profitability and most investors don't even know about it.
The largest brick-and-mortar retail chain in the world is Walmart (NYSE: WMT) -- everyone knows that it sells physical products in physical stores. What investors might not know is that Walmart has a growing digital business that's boosting its profitability.
Walmart's digital business has multiple components. It has an e-commerce website, which enables high-margin third-party sales in addition to first-party sales. It sells memberships to its subscription product Walmart+. And it leverages this digital scale into a skyrocketing advertising business.
In the first quarter of its fiscal 2026, for example, revenue for Walmart's advertising business jumped 50% year over year.