Discount retailer Target (TGT) is set to report first quarter earnings results on May 19, and the stock is carrying a lot of momentum in to the report. The weekly chart shows that the stock has been rising within a very tight trend channel over the last 14 months with only a few weeks where the stock has moved outside the channel. I normally only look at the upper and lower rails, but in the case of Target I drew the regression line as well to show how little the stock has veered off course during the time in question.

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In order to get a better idea of how well the stock has performed over the past year, I looked at Investor's Business Daily Relative Strength Rating and Target scores a 76. This means the stock has been in the top quartile in terms of price performance.

There are some concerns on the chart, mainly the fact that the stock is in overbought territory based on the 10-week RSI and the weekly stochastic indicators. Over the past year the stochastics have been overbought territory for the majority of the time with the exception of the dip in February and March.

The Fundamentals Helped Spur the Rally

The tight channel on the chart is impressive, but it may not be the most impressive thing about Target. When we look at the fundamental screener from Tickeron, we see that the company gets some great marks in five different fundamentals categories. There aren't any areas that get negative marks and only one gets an average rating.

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The one area where the stock gets the highest score is the Profit vs. Risk Rating which is a 4. The SMR rating is a 17, the Valuation rating and the Price Growth rating are both 20, and the outlook rating is 28.

Target has seen earnings grow by 22% per year over the last three years and they jumped by 58% in Q4 2020. Analysts expect earnings to jump sharply for Q1 with the current consensus estimate for EPS of $2.15. Last year showed EPS of $0.59 for Q1.

Revenue has grown by 8% per year over the last three years and it increased by 21% in Q4. The current consensus calls for revenue to increase by 12.8% for Q1.

Target's return on equity is yet another highlight at 36.2%. That is well above average for stocks in any industry and it is really high compared to the retail sector. The profit margin if only 6.5%, but that is above average for the discount retail industry.

The Sentiment Indicators are Slightly Skewed to the Bullish Side

Turning our attention to the sentiment indicators for Target, investors and analysts seem to be slightly more bullish on Target than they are the average stock. There are 30 analysts covering the stock at this time with 22 "buy" ratings, seven "hold" ratings, and one "sell" rating. This gives us a buy percentage of 73.3% and that is in the high end of the average range. The average buy percentage falls in the 65% to 75%.

The short interest ratio for Target is slightly below average, indicating higher optimism than average. The ratio is currently at 2.61 and that is after the number of shares sold short dropped from 8.8 million on March 31 to 6.91 million on April 30. The average ratio is in the 3.0 range, so Target’s isn’t too far off. The drop in short interest suggests that there is an increase in bullish sentiment or at least a decline in bearish sentiment.

On the options front, there are 90,424 puts open at this time and 132,175 calls open. This gives us a put/call ratio of 0.68. The average ratio falls in the 0.90 to 1.1 range, so like we see with the buy percentage and the short interest ratio, there is a slight bullish skew to Target’s put/call ratio.

Overall the sentiment suggests that most people are bullish on Target, but if we put that in to perspective with the chart and the fundamentals, it makes sense that investors are slightly more bullish on the company.

When we look at all three analysis styles, Target looks like a solid long-term investment. The fundamentals are strong and well above average in almost all aspects. The chart shows a strong upward trend with the really tight trend channel defining the small cycles within the overall upward trend. The sentiment indicators do show a little higher optimism than the average stock, but that should be the case based on the fundamentals and the chart.

As long as the stock remains within the trend channel, I would say that the best bet is to be long Target. The stock did drop after the last earnings report and then bottomed a few days later before resuming the upward trend. The company only beat estimates by a small margin after it had blown estimates out of the water in the three previous earnings reports. This could have influenced the reaction and we could see that happen again. I don’t think you have to buy the stock ahead of earnings, but I would look to buy on a dip after earnings.