The shares of Target Corp. (TGT) have been trading like the repercussions are bound to be limited from its loss of credit card and debit card information for 40 million customers at the hands of hackers.
But is this multi-line retailer successfully dodging a bullet, or had shares already dropped so far before the news that they have nowhere to fall from here?
Target boasted of strong Thanksgiving sales, and is beloved by investors for its consecutive years of reliable double-digit dividend growth. What's more, its revenue per employee of $204,000 (TTM) is significantly better than the $173,000 average of its peers.
To adherents of GARP (growth-at-a-reasonable-price) investing, however, Target appeals neither from a growth perspective nor a value perspective.
Target is generally performing worse than a good number of its multi-line retailer peers in debt, returns, profit margin, growth and valuation. And the multi-line retailer industry itself is not great shakes - it has underperformed the benchmark S&P 500 in 2013 by about 10 percent.
Target has a lowly operating margin of 4.07 percent, and its lackluster recent results do not inspire confidence - the retailer's quarterly revenue growth of 1.94 percent and annual revenue growth of 10.31 percent actually looks favorable when compared to its negative quarterly net income growth of -46.47 percent and its negative annual net income growth of -14.53 percent.
But the hits don't stop there. Following acknowledgement of the theft, Target announced it is dispensing extra 10 percent discounts on customer purchases during the December 21-22 Christmas rush. Hello, operating margins, are you still there?
Future revenue may show growth at Target on account of its expansion into Canada and its pursuit of e-commerce monies that to some degree are bound to replace existing bricks-and-mortar dollars. The company's amazing shrinking net income, however - it was down to $341 million in the most recent quarterly results - might give any GARP investor pause.
The Barron's 400 is sometimes regarded as an index that successfully follows a GARP philosophy. By way of comparison, the components in the Barron's 400 have 5-Yr. average EPS growth of 22.1 percent vs. Target's 6.3 percent, and average operating margin of 23 percent vs. Target's 6.23 percent.
Following the belated news last week that so many millions of customer accounts had been hacked and compromised by computer thieves, Target shares fell by only a bit more than 2 percent to $62.15.
But the shares were already trading much closer to their 52-week low of $58.01 than to their 52-week high of $73.50 before word of the massive theft broke. Perhaps they were already seeking a bottom.
Reuters reported the loss of Target's credit card and debit card data could cost about $680 million in litigation, customer notifications, card replacements, accounting and reimbursements for fraudulent charges. But it is unclear whether the retailer itself or various banks are ultimately on the hook for the costs, according to Reuters. Insurance coverage could also come into play.
The potential costs from the customer data breach, then, could be about 2x Target's most recent quarterly net of $341 million if the Reuters estimates are correct.
Therefore, if for some reason Target ends up being the ultimate party on the hook for the massive customer card data theft, it may turn out there is considerably more room for the share price to fall from here after all.
Target is a definite avoid in the short term while it sorts out its credit card and debit card crisis, and perhaps for the long term as well unless it gains ground on reasonable growth and profits.