Target’s best deal may be in stock.

target (TGT 1.23%) There have been problems over the past few years. Management’s miscalculations regarding the type and amount of some inventory resulted in sales at steep discounts. Supply chain disruptions have not helped the situation. There was also a well-publicized theft problem that actually led to the closure of several stores.

The result was lower profitability and investors bailing out of Target stock. Although the stock has recovered from recent lows and is up nearly 25% over the past six months, it is still down nearly 10% over the past year. As the economy recovers, discount stores still appear to be trading at discounted stock prices.

Profits are rebounding

After a sharp increase in sales and profits during the pandemic era, the aforementioned pricing and profit margin issues led to a significant decline in 2022 profits.

But 2023 looked much better. Net income for the first nine months of last year was roughly similar to the previous year’s total. The company said in its third quarter report that inventory was down 14% year-over-year. Earnings per share in the third quarter increased 36% compared to the same period last year.

Inventory revisions allowed Target to launch more than 10,000 new items during the holiday shopping season. In January, we added another large group of new products focused on the popular health and wellness category.

When Target Management reported its third quarter results, it expected fourth quarter performance to be similar to the third quarter. This means Target’s 2023 net income will exceed pre-pandemic levels. The company is expected to report fourth quarter and full-year 2023 results on March 5.

Even if Target doesn’t beat expectations, investors will realize that the business has recovered and the turnaround is well underway. This could be a catalyst for the stock to continue its recent upward trend. Now that Target’s underlying business has clearly recovered, investors would be wise to own the stock.