Should You Invest In Gap Inc’s Stock Now?

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GPS: Gap logo
GPS
Gap

Gap Inc’s (NYSE:GPS) stock gained more than 10% last week while the S&P 500 fell nearly -1%. Nearly a month ago we argued that Odds Are That Gap Inc’s Stock Will Go Up. Turns out that Gap’s stock has climbed nearly 25% in the month of November. While positive developments regarding a Covid-19 vaccine played their role, there is more to Gap that can sustain its momentum. Why do we say this? Because its fundamentals as well as our AI engine, that analyzes past patterns in stock movements to predict near term behavior, suggest so. Let’s see what might be in store for Gap’s investors.

What the AI engine says – Based on past pattern analysis, our AI engine predicts expected return for of 3.6% for Gap’s stock over the next 1 month. The expected return for 3 months and 6 months is significantly higher at 12.3% and 21.6%, respectively. Our detailed dashboard highlights the expected return for Gap given its recent move, and can also use this to understand near-term return probabilities for different levels of movements.

But what about the fundamentals? Our dashboard Big Movers: Gap Moved 10.6% – What Next? lays this out, suggesting that the more probable way for Gap Inc’s stock now is up.

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  3. Gap Stock Has Upside Potential To Its Pre-Inflation Peak
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  5. Will Gap Stock Trade Lower Post Q3 Results?
  6. Gap’s Q2 Earnings Preview: What Are We Watching?

Despite the impact of Covid-19, Gap’s stock price has increased nearly 38% this year. This is, in fact, at odds with how the stock behaved between 2017 and 2019, suggesting that the worst might be over for investors. At the beginning of this year, Gap’s trailing 12 month P/S ratio was 0.4. This figure decreased -20% to 0.32, before ending at 0.35. Compared to Gap’s P/S multiple of 0.35, the figure for its peers FL, and CASY stands at 0.71 and 0.77, respectively, indicating significant room for growth. If we look historically, we find that Gap’s P/S ratio has remained above 0.5, which again reinforced the likelihood of multiple expansion as the demand bounces back. The underlying growth, except for margins, supports this. Gap’s revenue has increased 3.3% from $15,855 Mil in 2017 to $16,383 Mil in 2019, although margins declined from 5.3% to 2.1% during the same time frame. The last 12 months show a completely different picture but that was expected, and temporary, due to Covid-19 restrictions. Overall, we believe that Gap could be still be a good investment.

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