Target vs. Best Buy: Which Retailer is a Better Buy?

The outlook is good for these companies as they should benefit from the surge in in=person shopping when the economy returns to normal.

Let’s shift our attention to the top retailers likely to attract that many more consumer dollars in the months and years to come. In particular, Target (TGT) and Best Buy (BBY) are worthy of your attention as an investor.

Target (TGT)

TGT has an A POWR Rating grade. The stock has an A Quality component grade along with Bs in the Value and Growth components. Investors who are curious as to how TGT fares in the remainder of the POWR Ratings components such as Momentum, Sentiment, and Stability can find out by clicking here.

Of the 40 stocks in the Grocery/Big Box Retailers space, TGT is ranked third. This industry as a whole has an A POWR Rating grade. Click here to learn more about this segment.

TGT's forward P/E ratio of 24.41 is slightly concerning. However, the stock is currently trading about a dollar below its 52-week high of $212.82 so the elevated forward P/E ratio is not as alarming as it might seem at first glance. Investors should also be aware of the fact that TGT’s 52-week low is $110.47.

While many other retailers have closed their doors for good due to the shift to online shopping and the challenges posed by the pandemic, TGT has not only persevered but thrived. TGT's comps are strong. The company's store count also continues to rise, albeit fairly slowly. It was only two years ago when TGT had comps growth of 3.4%. This figure has since jumped all the way to 19.3%. The icing on the cake is the increase in TGT's digital comps. TGT had digital comps growth of 29% in '19 and 145% digital comps growth in '20. The company's operating margins have also increased in the past two years.

TGT’s brass plans on investing a whopping $4 million to improve its in-store and digital operations in the next couple of years. In other words, TGT refuses to rest on its laurels; instead, choosing to strive for that much more market share both online and offline. Of the 29 analysts who have provided TGT recommendations, nine consider the stock a Strong Buy, 13 consider it a Buy, and seven consider it a Hold.

Best Buy (BBY)

BBY is also a POWR Ratings success story with an overall grade of B. The stock has A grades in the Quality and Momentum components of the POWR Ratings along with a B Value grade. Click here to find out how BBY fares in the Sentiment, Stability, and Growth components.

Of the 35 publicly traded companies in the Specialty Retailers space, BBY is ranked in the top 10, slotting in at number eight. You can learn more about the stocks in this space by clicking here.

The top analysts are largely bullish on BBY with six recommending the stock as a Strong Buy, eight recommending it as a Buy, 13 advising investors to Hold, two advising investors to Sell and two viewing the stock as a Strong Sell.

BBY has a forward P/E ratio of 16.11 even though it is priced $7 away from its 52-week high of $124.89. The stock's 52-week low is $73.59.

BBY will certainly benefit from government stimulus checks. However, some analysts question whether BBY's membership program that provides free shipping without a minimum order amount is a prudent business strategy. It is fair to question whether this plan will pluck members from Walmart+ and Amazon Prime which beat BBY to the punch by several years.

Which Retailer is Better?

TGT is the better of these two retailers. TGT has better POWR Ratings components and a better overall ranking in the Grocery/Big Box Retailer segment. This is not to say BBY is lacking in merit. There is a good chance both stocks climb higher in the weeks and months ahead. However, TGT is the better play for those looking for short-term gains as well as those who favor buying and holding across posterity.