In light of the retail apocalypse that’s been nothing but miserable for names like Macy’s Inc (NYSE:M), Dicks Sporting Goods Inc (NYSE:DKS) and a whole slew of other retailers, it would be easy to assume Gap Inc (NYSE:GPS) was in the same sinking ship. But GPS stock still has a little life left.
Before you overlook GPS as a possible buy for the reason of the company it keeps, however, you might want to take a closer look at this name that many had left for dead. As it turns out, this retailer is doing better than most investors appreciate, and three specific factors make a surprisingly strong bullish argument.
In no particular order…
1. Actual Growth
Think Gap is still back-pedaling when it comes to the top line? Think again.
It’s still a hit-and-miss matter, to be fair, though we’re starting to see a few more hits than we have in the recent past. Last quarter’s top line was up just a hair on a year-over-year basis, though it’s the third time in the past four quarters we’ve seen actual progress in the top line.
Profits per share of GPS stock haven’t been as progressive, falling another 3.3% for the third quarter of this year. The pace of the year-over-year declines is slowing dramatically though, and the pros are looking for consistent improvement in the bottom line going forward.
2. Peers are Rising Too
You can often gauge the quality of a particular stock’s trend by how many of its peers and competitors are behaving the same way; most cyclical trends should have broad participation.
To that end, it’s telling that alongside the 14% gain GPS stock has mustered since its July low, American Eagle Outfitters (NYSE:AEO), Urban Outfitters, Inc. (NASDAQ:URBN) and even Abercrombie & Fitch Co. (NYSE:ANF) have done similarly well.
Presumably, all of these similar names are in the same proverbial boat, and it’s unlikely investors are wrong to be rewarding all of them.
3. Chart Breakout
Finally, not only is GPS stock in a rally mode we’ve not seen from it in over a year, the move itself says Gap stock is clearing hurdles that would normally hold it back. Specifically, the major ceiling at $30.60 has been breached, as well as the minor one at $30.11.
The breakout thrust hasn’t been tested yet, to be fair. Ideally, the stock will survive the first wave of profit-taking without sliding back under the $30.60 before resuming the bigger uptrend. If that happens, the trip back towards 2014’s peaks around $42 gets much easier to make.
Looking Ahead for GPS Stock
Don’t read too much into the three-pronged bullish case for Gap Inc. There are never any guarantees in trading, and even fewer for inherently volatile stocks like GPS stock and its peers have been of late.
On the other hand, never dismiss what seems and sounds unlikely, particularly when the clues are lining up as they are here. The market’s most fascinating stories are the ones that weren’t likely to pan out as they ended up panning out.
Either way, this is a pick that should remain on a short leash, regardless of your timeframe and risk tolerance.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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