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Should Value Investors Buy The Gap (GPS) Stock?

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While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

One stock to keep an eye on is The Gap . GPS is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with P/E ratio of 13.25 right now. For comparison, its industry sports an average P/E of 14.62. GPS's Forward P/E has been as high as 31.95 and as low as -63.95, with a median of 20.90, all within the past year.

Another notable valuation metric for GPS is its P/B ratio of 1.60. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 2.85. Within the past 52 weeks, GPS's P/B has been as high as 2.49 and as low as 1.23, with a median of 1.58.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. GPS has a P/S ratio of 0.22. This compares to its industry's average P/S of 0.39.

Finally, investors should note that GPS has a P/CF ratio of 7.04. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. GPS's P/CF compares to its industry's average P/CF of 8.28. Over the past year, GPS's P/CF has been as high as 27.54 and as low as 5.51, with a median of 9.10.

Another great Retail - Apparel and Shoes stock you could consider is Nordstrom (JWN - Free Report) , which is a # 2 (Buy) stock with a Value Score of A.

Nordstrom is trading at a forward earnings multiple of 9.80 at the moment, with a PEG ratio of 2.71. This compares to its industry's average P/E of 14.62 and average PEG ratio of 0.75.

JWN's price-to-earnings ratio has been as high as 13.04 and as low as 5.73, with a median of 7.81, while its PEG ratio has been as high as 2.79 and as low as 0.36, with a median of 1.25, all within the past year.

Nordstrom sports a P/B ratio of 5.85 as well; this compares to its industry's price-to-book ratio of 2.85. In the past 52 weeks, JWN's P/B has been as high as 6.67, as low as 3.29, with a median of 4.64.

These figures are just a handful of the metrics value investors tend to look at, but they help show that The Gap and Nordstrom are likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, GPS and JWN feels like a great value stock at the moment.


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