It's a matchup between two consumer goods retailers navigating a turbulent economic landscape. As of this writing, shares of Target(NYSE: TGT) are down 31% year to date amid disappointing sales. RH(NYSE: RH) stock has also missed the mark, falling 58% in 2025, facing concerns that its supply chain of imported high-end furniture and subsequent earnings outlook is exposed to new U.S. trade tariffs.
Despite headwinds, Target and RH remain industry leaders, offering reasons for investor optimism about a potential turnaround. Could their recent stock price declines present a compelling buy-the-dip opportunity?
Let's explore whether Target or RH is the best stock to buy now.
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Target: A compelling high-yield dividend
Target stands out among its discount retail industry competitors, such as Walmart or Dollar General, by offering a more elevated in-store shopping experience. The retailer blends affordability with a curated assortment of merchandise, including a growing portfolio of private-label brands, attracting a loyal customer base.
On the other hand, Target is facing a historically challenging period into 2025, with core shoppers cutting discretionary spending due to economic uncertainty. In the first quarter (ended April 30), net sales declined by 2.8% year over year, while adjusted earnings per share (EPS) of $1.30 marked a 36% decline from last year, and missed the consensus Wall Street estimate of $1.61. Management cited soft in-store demand and some early tariff-related cost pressures.
The headline numbers lack confidence, but investors should focus on the bigger picture. Target has been ramping up promotional efforts with a shifting sales mix, offering lower-price point items to appeal to more value-conscious shoppers and drive store traffic. The company's digital strategy has been a bright spot, with e-commerce sales growing 4.7% from the prior-year quarter.
Even with Target guiding for a low-single-digit decline in net sales this year, the business remains profitable, with a 2025 adjusted EPS target between $7 and $9. That's great news for investors thinking about the sustainability of Target's $1.12-per-share quarterly dividend, now yielding 4.8%, which is further supported by a solid balance sheet.
In contrast, RH doesn't pay a regular dividend. With shares trading at just 12 times its 2025 projected EPS as a forward price-to-earnings (P/E) ratio, Target also offers good value next to RH, trading at a forward P/E of 16.
Investors seeking high-yield portfolio income have a strong argument that Target is the better retail stock to buy today.
RH is a category leader in premium home furnishings, offering luxury furniture and design services through its upscale galleries and membership model. The company benefits from strong brand recognition and a reputation for high-quality products.
However, those goods, primarily sourced from Asia, make RH vulnerable to tariffs on imports. When the levies were first announced back in April, RH stock plunged by 40% in a single day. In response, RH issued a statement noting its efforts to diversify its supply chain and projecting optimism toward its long-term growth potential.
While Wall Street analyst estimates for RH earnings this year have been revised lower in recent months, what hasn't changed is the underlying customer demand and growth momentum.
RH capped off its fiscal 2024 fourth quarter (ended Feb. 1) with comparable net revenue growth of 18% year over year, alongside a 21% increase in EPS compared to the prior-year quarter. The expectation is for revenue to climb by 11% in 2025, with that outlook helping to justify RH's valuation premium next to Target.
If tariff uncertainties resolve soon, possibly via trade negotiations, RH stock could rebound sharply. Investors who believe RH will emerge stronger and still on track for significant long-term growth as it expands internationally could consider buying the stock now.
As tempting as Target's dividend yield is, I believe RH stock is the better buy today, since it may have more upside as its operating and financial conditions normalize. What I like about RH is that the company is unique in its scale and specialization within luxury home furnishings, while Target faces more intense direct competition. From its beaten-down price level, I predict shares of RH will outperform, led by its continued strong growth, making it a solid addition to diversified portfolios.
Should you invest $1,000 in RH right now?
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.
