Odds Are That Gap Inc’s Stock Will Go Up

Gap Inc’s (NYSE:GPS) stock has jumped more than 12% in the last 5 trading days, the trigger being the company’s recently unveiled growth strategy. Does that mean this is the right time to invest? Our analysis suggests so. We look at past stock behavior and couple it with trends in underlying financials. The result? Gap can be both a near-term momentum play as well as a long-term investment opportunity. Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period, and suggests nearly a 46% probability of Gap moving up 10% over the next 3 months, while the chances of moving down by -10% during the same time frame is -26%. This implies greater odds of sustained momentum. Our detailed dashboard highlights the chances of Gap’ stock rising or falling and should help you understand near-term return probabilities for different levels of movements. To add to this, the fundamentals suggest that Gap Inc can also be an interesting long-term investment opportunity. Our dashboard Big Movers: Gap Moved 12.5% – What Next? lays this out.

Gap’s stock price increased 7.6% this year, from $17.68 to $19.03, before moving 12.5% last week, and ending at $21.41. In comparison, the stock has decreased -48% between 2017 and 2019, and has decreased -37% between 2017 and now.  So the move this year, as well as during the last 5 trading days, is completely at odds with the long-term trend. This could either mean that Gap has bottomed out, or that this is a short term respite for investors. Which one is it? Looking at fundamentals and stock behavior, we conclude that it is the former. Gap’s revenue growth has been slow. The figure increased just 3.3% from $15,855 Mil in 2017 to $16,383 Mil in 2019. For the last 12 months, it in fact dropped -14.2% to $14,054 Mil. If we look at margins, we find that net margins decreased -59.9% from 5.3% in 2017 to 2.1% in 2019, and dropped to -7.39% for the last 12 months. Despite deteriorating performance, the stock has gone up which is an indication of bottoming out. The P/S ratio suggests something similar. The figure for Gap Inc has historically remained above 0.5, and the recent move has pushed the P/S back into the historical range. If we assume that the multiple doesn’t change, a rebound in demand is likely to help the stock sustain momentum.

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