Can Gap’s Stock Jump 2x Once The Coronavirus Outbreak Runs Its Course?

by Trefis Team
-35.03%
Downside
12.31
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Trefis
GPS
Gap Inc.
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Comparing the trend in Gap’s (NYSE: GPS) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 100% and double in value once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of Gap’s performance vs. the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Gap Stock Fare Compare With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and March 25th, Gap stock has lost 48% of its value (vs. about 26% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

 

Gap’s Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

The decline in Gap’s stock is understandable, considering the impact that the outbreak and a broader economic slowdown are likely to have on consumer spending in the global apparel industry. Moreover, people are just not going out to shop for luxury or even basic apparel. In fact, the company has temporarily shuttered all its stores across North America, which is further impacting the company’s performance. In its Q4 2019 earnings (ending January), Gap anticipated its Q1 2020 results to be negatively impacted by approximately $100 million in sales. However, we believe the impact could be much higher as the outbreak increases.

But Gap Stock Witnessed Something Similar During The 2008 Downturn

  • We see Gap’s stock declined from levels of around $13 in October 2007 (the pre-crisis peak) to levels of about $8 in March 2009 (as the markets bottomed out) – implying the company’s stock lost as much as 40% from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.
  • However, Gap recovered strongly post the 2008 crisis to about $16 in early 2010 – rising by 100% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

 

Will Gap’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Gap stock has fallen by 48% this time around compared to the 40% decline during the 2008 recession, a potential recovery of 100% to levels of $18 is definitely on the cards once economic conditions begin to show signs of improving. This marks a full recovery to the $18-level Gap stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of Coronavirus impact on a diverse set of Gap’s multinational peers – from Coronavirus and Tapestry to impact on competitor Guess and Coronavirus on L Brands stock. The complete set of coronavirus impact and timing analyses is available here.

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