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Buy Target Stock Now (and Ignore the Short-Term Reaction)

Target shares dropped 25% after an earnings report that many did not like. (That creates a potential buying opportunity.)

Earnings reports tell you a lot about a company when you follow them quarter after quarter. Does the company deliver on its promises? Can it address problems? Are its CEO's comments accurate and does he or she own up to mistakes or explain when things go wrong.

Taken on an isolated basis, however, earnings reports don't paint a full picture. That can lead to the market -- a sort of amorphous collective whole that describes analysts, pundits, traders, and people who like being on TV -- to take certain numbers and use them to push a stock's shares up or down.

Financial media like to tell you if a company beat analyst estimates on revenue and profits, but they're not that good at letting you know the why. That's what happened to Target (TGT) - when it reported first-quarter earnings. Analysts and more broadly "Wall Street" decided the numbers were bad without really looking at the long term or the company's actual health.

It's sort of like hearing someone sneeze, assuming they have covid, and not noticing that something tickled their nose. Target reported slower same-store sales growth and saw its earnings per share drop by almost 50%.

The market or Wall Street, whatever you want to call it, saw those as bad numbers, and the shares closed on May 18 down over 25%. In reality, Target showed how strong a business it has and why you should consider owning shares.

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How Did Target Actually Do In Q1?

When a potential NFL player runs a 40-yard dash, the people evaluating the performance note the wind conditions. Running into the wind slows you down and running with the wind at your back makes you faster.

Target just completed a quarter running into a really stiff wind. It's a time of unprecedented supply chain problems, near-historical high gas prices, very high, if not record, inflation, and the lingering impact of the pandemic. The company also had to deal with a year-ago quarter where covid put the wind at its back, pushing it to 22.9% same-store sales growth.

Despite all of these negative conditions, Target delivered a 3.3% increase in comparable-store sales and an EPS of $2.16 (down from $4.17 in Q1 2021). Basically, the company managed to grow its sales and still make money despite market conditions that drove its costs higher.

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Labor costs increased and shipping costs increased, but rising consumer prices on housing, gas, and other items limited how much of the cost increase Target could pass on to its customers.   

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Bruce Kamich looked at .

And Bret Kenwell identified key support levels to watch for Target.