The Gap Inc. GAP stock has been volatile in the past year, driven by mixed trends, highlighted by strength in brands and continued market share growth, offset by an uncertain macroeconomic environment, including inflationary pressures and other headwinds. As a result, GAP has encountered a notable resistance level, prompting caution among investors from a technical standpoint.
Driven by these trends, the GAP stock is trading below its 50-day simple moving average (SMA), indicating a bearish outlook and challenges in sustaining the recent performance levels.
The SMA is an essential tool in technical analysis that helps investors evaluate price trends by smoothing short-term fluctuations. This approach provides a clearer perspective on a stock's long-term direction. This technical indicator, coupled with the soft margins outlook, indicates a negative market sentiment and reflects doubts about Gap’s financial health and prospects.
For the fourth quarter of fiscal 2024, the company projects the gross margin to be similar year over year, excluding roughly one percentage point of deleveraged rent, occupancy and depreciation from soft sales in the quarter due to the absence of the 53rd week.
GAP Stock Trades Below 50-Day Moving Average
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Shares of Gap have risen 20.2% in the past year, outperforming its industry peer’s collective growth of 17.3%. The GAP stock, however, compared unfavorably against the broader Retail-Wholesale sector and the S&P 500 Index’s growth of 31.2% and 24.1%, respectively, in the same period.
Gap’s performance is notably weaker than its close competitors, including Boot Barn BOOT, Genesco GCO and Urban Outfitters’ URBN growth of 50.9%, 27.8% and 28.4%, respectively.
Gap’s One-Year Stock Performance
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At the current share price of $23.01, Gap’s stock price reflects a 22.9% premium to the company’s recent 52-week low of $18.72. Meanwhile, the GAP stock’s price reflects a 24.8% discount from its 52-week high of $30.59.
GAP’s Estimate Revision Trend
The Zacks Consensus Estimate for Gap’s fiscal 2024 earnings per share was unchanged in the last 30 days. The consensus estimate for fiscal 2025 EPS moved down by a penny in the last 30 days.
For fiscal 2024, the Zacks Consensus Estimate for GPS’s sales and EPS implies 0.7% and 41.3% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and earnings indicates 1.9% and 6.1% year-over-year growth, respectively.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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Does Low P/E Valuation Suggest Growth Prospects?
Gap’s current valuation suggests that the stock is available at a discounted price compared with the industry average. The GAP stock trades at a forward 12-month price-to-earnings (P/E) ratio of 10.66X, significantly lower than the Zacks Retail – Apparel and Shoes industry average of 19.37X and the S&P 500’s average of 22.71X.
Similarly, the forward 12-month price-to-sales (P/S) ratio of 0.57X is substantially lower than the industry average of 1.73X and the S&P 500’s average of 5.38X.
Although Gap is trading at a low valuation multiple compared with the industry, investors’ decisions on whether to lock in gains, hold or remain bullish on GAP depend on several factors.
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GAP’s Long-Term Potential
Gap’s long-term growth potential is mainly tied to the success of its brands. It has carved out a niche with its four distinct brands — Gap, Old Navy, Banana Republic and Athleta — each catering to unique market segments, thus providing diverse revenue streams and reducing overall risk.
The company is executing strategic initiatives to revitalize its brands and improve operational efficiency. Management remains focused on four key priorities — strengthening financial and operational discipline, reinvigorating its brands, enhancing its operating platform, and fostering a strong company culture. Gap is also optimistic about its holiday collection and is committed to improving the customer experience online and in stores.
In addition, the company is advancing cost-management efforts to simplify its operations. By increasing spans of control, reducing management layers and standardizing its structure across brands, the company aims to improve decision-making speed and efficiency. These measures are expected to generate $300 million in annualized savings, with plans to optimize marketing spend and streamline technology investments.
Is Gap Stock a Buy Opportunity?
GAP has solidified its position as a retail apparel leader through strong branding, digital innovation, sustainability efforts and global expansion. By prioritizing product innovation, operational efficiency and a customer-centric approach, the company is well-equipped to navigate the shifting retail landscape and maintain its competitive advantage.
However, economic uncertainty and inflationary pressures warrant caution. Consumer confidence, a crucial driver of spending, remains a key risk factor. While the stock appears attractively valued with a low P/E multiple, investors should carefully assess risks and opportunities before making an investment decision.
For existing shareholders, holding on to the stock could be a prudent move, given Gap’s long-term growth prospects. As the company continues executing its strategic initiatives, its ability to drive sustained performance and shareholder value remains strong. Gap currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
