Let’s pretend you’re considering an investment in Target Corp (TGT). You’re not interested in hype — you want a good business at a fair or cheap price.
Here’s how you’d break it down as a value investor:
Step 1: Understand the Business
What does Target do?
- General merchandise retailer, similar to Walmart but often seen as more brand-friendly.
- Mix of essentials (groceries, cleaning products) and discretionary (home decor, fashion).
- Repeat customers, strong brand identity, decent e-commerce presence.
Key Question:
Is this a business I understand and would feel confident owning for 10+ years?
If yes, move on.
Step 2: Look at Key Financials (Get from Yahoo Finance, TIKR, or company 10-K)
1. Revenue & Earnings Growth
| Year | Revenue ($B) | Net Income ($B) |
|---|---|---|
| 2020 | 78.1 | 3.3 |
| 2021 | 93.6 | 4.4 |
| 2022 | 106.0 | 6.9 |
| 2023 | 108.5 | 3.3 |
Analysis: Good revenue growth from 2020–2022. Net income took a hit in 2023 (inflation, inventory issues), but not catastrophic.
2. Margins
- Gross Margin: 26–30% (decent for retail)
- Operating Margin: ~5% (tight, but stable)
Margins matter because they show pricing power and operational efficiency.
Step 3: Look at Valuation Metrics
| Metric | TGT Value | Interpretation |
|---|---|---|
| P/E Ratio | ~16x | Not too expensive, close to S&P 500 average |
| Dividend Yield | ~2.8% | A nice bonus for long-term holders |
| P/B Ratio | ~4.5 | A bit high — but Target’s assets are brand and goodwill-heavy |
Rule of Thumb:
A good value stock is profitable, pays dividends, and has a P/E under 20.
Step 4: Check the Balance Sheet
Key items:
- Debt: Manageable. Around $13B long-term debt with consistent payments.
- Cash Flow: Operating cash flow consistently over $6B per year — shows financial strength.
- Return on Equity (ROE): 30%+ — shows they use shareholder capital efficiently.
Step 5: Intrinsic Value Estimate
Let’s use a back-of-the-envelope Discounted Cash Flow (DCF).
If Target earns $7/share and grows earnings 5% annually for 10 years, then flattens…
- Fair value with a 10% discount rate ≈ $150–$160
- Current price (as of early 2024): Around $140
Verdict: Slightly undervalued — worth putting on a watchlist or starting a small position.
Step 6: The Intangibles
Ask:
- Is the company shareholder-friendly? (Dividends, buybacks — ✅)
- Does it have competitive advantages? (Brand loyalty, supply chain — ✅)
- Would you feel OK owning this during a recession? (Essential goods + low-end shoppers shift upward — ✅)
Final Word:
A good value investment is like buying a $100 bill for $70 — and getting a small paycheck while you wait for the market to notice.