Examining The Gap, Inc.'s (NYSE:GPS) past track record of performance is a valuable exercise for investors. It enables us to understand whether the company has met or exceed expectations, which is a powerful signal for future performance. Below, I will assess GPS's latest performance announced on 03 August 2019 and weigh these figures against its longer term trend and industry movements.
Could GPS beat the long-term trend and outperform its industry?
GPS's trailing twelve-month earnings (from 03 August 2019) of US$937m has increased by 4.7% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of -6.0%, indicating the rate at which GPS is growing has accelerated. How has it been able to do this? Well, let’s take a look at whether it is merely because of industry tailwinds, or if Gap has experienced some company-specific growth.
In terms of returns from investment, Gap has invested its equity funds well leading to a 26% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 7.0% exceeds the US Specialty Retail industry of 5.6%, indicating Gap has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Gap’s debt level, has declined over the past 3 years from 30% to 13%.
What does this mean?
Gap's track record can be a valuable insight into its earnings performance, but it certainly doesn't tell the whole story. Recent positive growth isn't always indicative of a continued optimistic outlook. There may be variables that are influencing the entire industry thus the high industry growth rate over the same time frame. You should continue to research Gap to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GPS’s future growth? Take a look at our free research report of analyst consensus for GPS’s outlook.
- Financial Health: Are GPS’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 03 August 2019. This may not be consistent with full year annual report figures.
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