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Is the Gap (GPS) Stock a Justified Buy After the Recent Dip?
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The Gap Inc. (GPS - Free Report) has rolled down the charts in the past month, pushing it behind its industry peers and the broader S&P 500 index. The GPS stock has dipped 11.7% in the past month compared with the industry’s decline of 6.2%. The company also underperformed the broader Zacks Retail-Wholesale sector and the S&P 500's growth of 2.3% and 2.7%, respectively, in the same period.
At the current price, the stock trades at a 24.9% discount to its 52-week high of $30.59 reached on Jun 3, 2024, when it reported strong first-quarter fiscal 2024 numbers. The company clearly demonstrated a comeback on financial grounds, with better-than-anticipated key metrics reported in the fiscal first quarter.
Gap has shown significant financial recovery in the first quarter of fiscal 2024. The company reversed its prior-year loss of $18 million to a profit of $158 million. Its results reflected its ability to gain market share and revive its brand’s position amid competition from fellow retailers. If this is true, what is wrong with the GPS stock and what has caused its recent decline?
The decline in Gap shares in the past month can be attributed to shifts in market sentiment influenced by broader economic indicators, geopolitical uncertainties and sector-wide trends. Concerns over underlying inflation and higher interest rates have contributed to cautious investor behavior, prompting some to sell off stocks. Profit-booking among investors looking to cash in on previous gains has added pressure despite Gap's fundamental strengths.
Image Source: Zacks Investment Research
Revitalize & Reinvent: Keys to GPS's Long-Term Growth Story
Despite the recent challenges, Gap is strategically positioning itself for long-term growth. With a rich heritage in retail and a portfolio of well-known brands, the company is leveraging multiple initiatives to ensure sustainable growth in the evolving retail landscape. Management is committed to creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses.
Gap’s recent turnaround highlights the resilience of its business model and effective cost management strategies. The company has created a niche with the legacy of four unique brands such as Gap, Old Navy, Banana Republic and Athleta, each catering to different market segments. These brands provide a diverse revenue stream.
Old Navy’s focus on value-driven fashion and Athleta’s appeal in the booming activewear market offer significant opportunities for revenue growth. Notably, Old Navy has been a powerhouse brand, generating more than half of the company’s sales. Meanwhile, Athleta has untapped potential to capitalize on the growing aspirations of women in athletics.
Additionally, GPS is on track to reposition the Banana Republic brand to excel in the premium lifestyle segment. The company’s management has been lauded for turning around the performance of its namesake Gap brand, bringing back its heritage of offering ‘every generation’ merchandise.
Moreover, Gap’s aggressive cost-management actions, including simplifying and optimizing its operating model and structure, have been paying off. Its cost-saving actions, coupled with lower airfreight and promotional activities, contributed to margin growth in first-quarter fiscal 2024.
The company’s gross margin expanded 400 basis points (bps) year over year to 41.2% in the fiscal first quarter. Operating income was $205 million, improving from an operating loss of $10 million in the year-earlier quarter.
Upward Estimate Trajectory
The Zacks Consensus Estimate for Gap’s fiscal 2024 and 2025 earnings per share rose 3.6% and 2.7%, respectively, in the last 30 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
For fiscal 2024, the Zacks Consensus Estimate for GPS’s sales and EPS implies 0.2% and 21.7% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and earnings indicates 1.8% and 7.8% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Undervalued Stock: Is it Opportune to Buy?
The company is currently trading at a discount than its industry on a forward 12-month P/E basis, making the stock an attractive pick for investors. Gap is currently trading at a forward 12-month P/E ratio of 12.75X, below the industry average of 16.67X and the S&P 500’s average of 22.01X.
Image Source: Zacks Investment Research
The stock also trades at a discount to its peers, including Abercrombie & Fitch (ANF - Free Report) , Boot Barn (BOOT - Free Report) and Deckers Outdoor (DECK - Free Report) , which are trading at forward 12-month P/E multiples of 17.92X, 25.2X and 28.38X, respectively.
Additionally, GPS is trading above its 200-day moving average, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in GPS’s financial health and prospects.
Gap Stock Trades Above 200-Day Moving Average
Image Source: Zacks Investment Research
Does an Undervalued Stock Justify a Buy?
Gap continues to hold a market niche in the retail apparel industry, thanks to its focus on brand strength, digital transformation, sustainability, global expansion, product innovation, operational efficiency, strong leadership and a consumer-centric approach. These efforts position the company well to navigate the complexities of the modern retail landscape and emerge stronger.
GPS’s recent stock decline may appear concerning at first glance, but it could also be seen as an opportunity for savvy investors. The company's current price presents a compelling entry point for investors eager to invest in this profitable apparel retailer. For those who already own the stock, stay invested for solid long-term prospects.
Image: Bigstock
Is the Gap (GPS) Stock a Justified Buy After the Recent Dip?
The Gap Inc. (GPS - Free Report) has rolled down the charts in the past month, pushing it behind its industry peers and the broader S&P 500 index. The GPS stock has dipped 11.7% in the past month compared with the industry’s decline of 6.2%. The company also underperformed the broader Zacks Retail-Wholesale sector and the S&P 500's growth of 2.3% and 2.7%, respectively, in the same period.
At the current price, the stock trades at a 24.9% discount to its 52-week high of $30.59 reached on Jun 3, 2024, when it reported strong first-quarter fiscal 2024 numbers. The company clearly demonstrated a comeback on financial grounds, with better-than-anticipated key metrics reported in the fiscal first quarter.
Gap has shown significant financial recovery in the first quarter of fiscal 2024. The company reversed its prior-year loss of $18 million to a profit of $158 million. Its results reflected its ability to gain market share and revive its brand’s position amid competition from fellow retailers. If this is true, what is wrong with the GPS stock and what has caused its recent decline?
The decline in Gap shares in the past month can be attributed to shifts in market sentiment influenced by broader economic indicators, geopolitical uncertainties and sector-wide trends. Concerns over underlying inflation and higher interest rates have contributed to cautious investor behavior, prompting some to sell off stocks. Profit-booking among investors looking to cash in on previous gains has added pressure despite Gap's fundamental strengths.
Image Source: Zacks Investment Research
Revitalize & Reinvent: Keys to GPS's Long-Term Growth Story
Despite the recent challenges, Gap is strategically positioning itself for long-term growth. With a rich heritage in retail and a portfolio of well-known brands, the company is leveraging multiple initiatives to ensure sustainable growth in the evolving retail landscape. Management is committed to creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses.
Gap’s recent turnaround highlights the resilience of its business model and effective cost management strategies. The company has created a niche with the legacy of four unique brands such as Gap, Old Navy, Banana Republic and Athleta, each catering to different market segments. These brands provide a diverse revenue stream.
Old Navy’s focus on value-driven fashion and Athleta’s appeal in the booming activewear market offer significant opportunities for revenue growth. Notably, Old Navy has been a powerhouse brand, generating more than half of the company’s sales. Meanwhile, Athleta has untapped potential to capitalize on the growing aspirations of women in athletics.
Additionally, GPS is on track to reposition the Banana Republic brand to excel in the premium lifestyle segment. The company’s management has been lauded for turning around the performance of its namesake Gap brand, bringing back its heritage of offering ‘every generation’ merchandise.
Moreover, Gap’s aggressive cost-management actions, including simplifying and optimizing its operating model and structure, have been paying off. Its cost-saving actions, coupled with lower airfreight and promotional activities, contributed to margin growth in first-quarter fiscal 2024.
The company’s gross margin expanded 400 basis points (bps) year over year to 41.2% in the fiscal first quarter. Operating income was $205 million, improving from an operating loss of $10 million in the year-earlier quarter.
Upward Estimate Trajectory
The Zacks Consensus Estimate for Gap’s fiscal 2024 and 2025 earnings per share rose 3.6% and 2.7%, respectively, in the last 30 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
For fiscal 2024, the Zacks Consensus Estimate for GPS’s sales and EPS implies 0.2% and 21.7% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and earnings indicates 1.8% and 7.8% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Undervalued Stock: Is it Opportune to Buy?
The company is currently trading at a discount than its industry on a forward 12-month P/E basis, making the stock an attractive pick for investors. Gap is currently trading at a forward 12-month P/E ratio of 12.75X, below the industry average of 16.67X and the S&P 500’s average of 22.01X.
Image Source: Zacks Investment Research
The stock also trades at a discount to its peers, including Abercrombie & Fitch (ANF - Free Report) , Boot Barn (BOOT - Free Report) and Deckers Outdoor (DECK - Free Report) , which are trading at forward 12-month P/E multiples of 17.92X, 25.2X and 28.38X, respectively.
Additionally, GPS is trading above its 200-day moving average, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in GPS’s financial health and prospects.
Gap Stock Trades Above 200-Day Moving Average
Image Source: Zacks Investment Research
Does an Undervalued Stock Justify a Buy?
Gap continues to hold a market niche in the retail apparel industry, thanks to its focus on brand strength, digital transformation, sustainability, global expansion, product innovation, operational efficiency, strong leadership and a consumer-centric approach. These efforts position the company well to navigate the complexities of the modern retail landscape and emerge stronger.
GPS’s recent stock decline may appear concerning at first glance, but it could also be seen as an opportunity for savvy investors. The company's current price presents a compelling entry point for investors eager to invest in this profitable apparel retailer. For those who already own the stock, stay invested for solid long-term prospects.
Gap currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.