Gap Stock Down 15% In A Month, Looks Like A Steal At $14?

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 15% over the twenty-one trading days (one month) and currently stands near $14. It should be noted that the broader S&P500 returned a 7% decline during the same period. In 2021, the company faced headwinds with supply chain issues weighing heavily on its performance, particularly driven by longer transit times from the West Coast port delays and sudden and prolonged closure of factories in Vietnam. To avoid congested ports, Gap chose to ship a larger portion of its merchandise via air freight services. And, these more expensive shipping options weighed on its profits in the second half of the year. That said, the retailer’s full-year revenue was still up 21% year-over-year (y-o-y) and was nearly 2% above 2019’s levels. In addition, the company swung from a larger loss of $665 million in 2020 (or -$1.78 per share) to a profit of about $256 million in 2021 (or $0.68 per share). This was impressive given that the company saw a 5% higher operating expense and a 10% rise in the cost of goods sold and occupancy expenses in 2021. These full year’s results give hope that the company is bouncing back from the dim days of 2020, although it still continues to face challenges in terms of supply chain headwinds.

Going forward, Gap expects its top-line to grow by low single-digit percentages in 2022, while full-year earnings of $1.85 to $2.05 per share could be as much as triple what the company posted for fiscal 2021. The company’s management is diversifying port exposure through Eastern and Southern ports, growing its Mexico and Central America sourcing in 2022 to increase manufacturing speed, divesting smaller non-strategic brands, and shedding underperforming North American stores – to further strengthen its core business. The company’s stock is down 21% year-to-date, and down almost 50% in the last year. So does GAP stock still look very cheap at current levels? We certainly think so.

Now, is GPS stock poised to decline in the short term or are gains looking more likely? Based on our machine learning analysis of trends in the stock price over the last ten years, there is a 53% chance of a rise in GPS stock over the next month (twenty-one trading days). See our analysis on Gap Stock Chance Of Rise for more details.

Calculation of ‘Event Probability’ and ‘Chance of rising’ using last 10 year data