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Is Gap (GPS) Stock Undervalued Right Now?

Zacks Equity Research

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

Gap (GPS) is a stock many investors are watching right now. GPS is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock is trading with P/E ratio of 8.34 right now. For comparison, its industry sports an average P/E of 10. GPS's Forward P/E has been as high as 11.42 and as low as 7.31, with a median of 9.44, all within the past year.

GPS is also sporting a PEG ratio of 0.93. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. GPS's PEG compares to its industry's average PEG of 0.98. Within the past year, GPS's PEG has been as high as 1.27 and as low as 0.81, with a median of 1.05.

We should also highlight that GPS has a P/B ratio of 1.80. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 2.96. GPS's P/B has been as high as 3.28 and as low as 1.59, with a median of 2.70, over the past year.

Value investors also frequently use the P/S ratio. This metric is found by dividing a stock's price with the company's revenue. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. GPS has a P/S ratio of 0.4. This compares to its industry's average P/S of 0.49.

Finally, we should also recognize that GPS has a P/CF ratio of 4.44. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. This company's current P/CF looks solid when compared to its industry's average P/CF of 7.58. GPS's P/CF has been as high as 7.96 and as low as 3.93, with a median of 6.30, all within the past year.

These are just a handful of the figures considered in Gap's great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that GPS is an impressive value stock right now.


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