What’s Next For Gap’s Stock After A 30% Fall?

by Trefis Team
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Trefis
GPS
Gap Inc.
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Gap’s stock (NYSE: GPS), a specialty retailer selling casual apparel, accessories, and personal care products for men, women, and children under the Gap, Old Navy, and Banana Republic brands, has declined by 30% in the last five trading days (one week). In comparison, the broader S&P500 index declined only 2% over the same period. The retailer’s stock fell after its guidance for the crucial holiday quarter disappointed. The company now expects full-year sales to grow 20% year-over-year as compared to a prior view of 30% growth (vs. the consensus expectation of 28.3% growth). It also estimates full-year EPS to range between $1.25 to $1.40 compared to the prior view of $2.10 to $2.25. The company’s management noted that severe supply chain headwinds are impacting its ability to fully meet strong customer demand. To add to this, the apparel retail sector is currently hit by a combination of Omicron variant anxiety and new concerns over the impact of Fed tapering or rate hikes.

Now, is GPS stock still poised to fall? Based on our machine learning analysis of trends in the stock price over the last ten years, there is a 57% chance of a rise in GPS stock over the next month (twenty-one trading days). See our analysis on GPS Stock Chance Of Rise for more details.

And if you are considering GPS stock as an investment option over a longer time frame, you can explore our forecast for Gap’s Valuation. We have updated our model following the Q3 release. We now forecast Gap’s Revenues to be $16.7 billion for the full year 2021, up 21% y-o-y, compared to a prior 29% y-o-y growth. Looking at the bottom line, we now forecast EPS to come in at $1.36, compared to our earlier estimate of $1.96. Given the changes to our revenues and earnings forecast, we have corrected the company’s valuation to $20 per share from our previous estimate of $28, based on $1.36 expected EPS and a 14.6x P/E multiple for fiscal 2021. Our Gap valuation is almost 16% higher than the current market price. We believe that the company’s stock appears cheap at the current levels.

[1] Returns of -30% or lower over five-day period in 6 times out of 2516 (0%); Stock rose in the next five days in 3 of these 6 instances (50%)

[2] Returns of -34% or lower over ten-day period in 8 times out of 2515 (0%); Stock rose in the next ten days in 1 of these 8 instances (13%)

[3] Returns of -31% or lower over twenty-one-day period in 21 times out of 2515 (1%); Stock rose in the next twenty-one days in 12 of these 21 instances (57%)

Also, Gap Peer Comparisons summarizes how the company fares against peers on metrics that matter.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
 GPS Return -27% -18% -26%
 S&P 500 Return -1% 22% 104%
 Trefis MS Portfolio Return -4% 45% 294%

[1] Month-to-date and year-to-date as of 12/1/2021
[2] Cumulative total returns since 2017

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