GAP Stock Spikes 13% on Holiday Cheer & Raised Outlook: Time to Buy?

The Gap Inc. GAP has seen its shares rally 12.7% since reporting strong third-quarter fiscal 2024 results on Nov. 21, 2024. This reflects an outperformance compared with its industry peers, the broader sector and the S&P 500 index. The Retail - Apparel and Shoes industry has risen 8.1% and the Retail-Wholesale sector notched up 2.4% in the same period. Also, the S&P 500 has inched up 0.7% since Nov. 21.GAP’s Price Performance Image Source: Zacks Investment Research The stock’s rally since its earnings release highlights investor optimism. Gap exceeded the Zacks Consensus Estimate for earnings per share (EPS) and revenues in third-quarter fiscal 2024. EPS rose 22% year over year, whereas revenue grew 2%. The strong quarterly performance was driven by robust brand strength and increased market share, marking the seventh consecutive quarter of market share gains. In the fiscal third quarter, Old Navy reported solid sales, Gap showed momentum, Banana Republic made progress and Athleta returned to growth.Gap has been smoothly progressing on the reinvigoration of its brands and actively managing costs. Management is focused on its four priorities — driving financial and operational rigor, reinvigorating the brands, reinforcing its operating platform, and energizing culture.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.GAP’s Upbeat FY24 Projections Boost SentimentThe Gap stock’s momentum is also driven by its raised fiscal 2024 outlook, fueled by optimism around its holiday collection. In the fourth quarter of fiscal 2024, the company is prioritizing an enhanced experience for both online and in-store shoppers by refreshing product imagery on its website and remodeling 15% of its stores.Gap is committed to executing with excellence in the fiscal fourth quarter. Strong performance in the third quarter and the early fourth quarter positions the company well for the holiday season. This has bolstered its confidence to raise its fiscal 2024 outlook for sales, gross margin and operating income growth.For fiscal 2024, management forecasts sales growth of 1.5-2% on a 52-week basis, implying fourth-quarter net sales growth of 1-2%. Earlier, the company anticipated sales to increase slightly on a 52-week basis. Gap expects the gross margin to expand by at least 220 basis points (bps) year over year, up from the earlier mentioned 200 bps rise. This improvement is driven by commodity cost tailwinds in the first half of fiscal 2024, improved inventory management and relatively neutral ROD. In fourth-quarter fiscal 2024, the gross margin is expected to be consistent with last year.Operating income for fiscal 2024 is projected to increase year over year in the mid-to-high 60%. This represents substantial progress toward restoring historical operating profit levels.GAP’s Estimates Reflect UptrendThe Zacks Consensus Estimate for Gap’s fiscal 2024 and 2025 EPS rose 4.8% and 2.5%, respectively, in the last seven days. The upward revisions in earnings estimates indicate that analysts are optimistic about the stock’s performance.For fiscal 2024, the Zacks Consensus Estimate for GAP’s sales and EPS implies 1.3% and 37.8% year-over-year growth. The consensus mark for fiscal 2025 sales and EPS indicates 1% and 5.2% year-over-year growth, respectively. Image Source: Zacks Investment Research Is GAP’s Overall Share Performance Just as Impressive?Gap shares show a stable performance in the year-to-date period. Specifically, the Gap stock has risen 18.8% year to date, outperforming the industry’s growth of 12.2%.However, the company’s shares have underperformed its competitor Nordstrom Inc. JWN, Abercrombie & Fitch ANF and Deckers Outdoor’s DECK growth of 35%, 76.2 and 76.4%, respectively, in the year-to-date period.GAP Vs Peers Image Source: Zacks Investment ResearchThe Gap stock is trading at an 18.8% discount from its 52-week high of $30.59. Also, the stock reflects a 35.4% premium from its 52-week low of $18.34.The Gap stock is trading above its 50-day and 200-day moving averages, signaling strong upward momentum and price stability. This technical strength indicates positive market sentiment and confidence in the company's financial health and prospects.GAP Stock Trades Above 50 & 200-Day Moving Average Image Source: Zacks Investment Research Undervalued GAP Stock: Is it Opportune Time to Buy?Gap is currently trading at a discount to its industry on a forward 12-month P/E basis, making the stock an attractive pick for investors. Gap’s current forward 12-month P/E ratio of 12.11X is below the industry average of 16.92X and the S&P 500’s average of 22.38X.Trading much below its three-year high of 31.95X, the current valuation appears more affordable and appealing, presenting an opportunity to accumulate shares. The stock’s current Value Score of A further validates its appeal. Image Source: Zacks Investment Research How to Strategize Your GAP Stock Investment?Gap’s third-quarter fiscal 2024 results highlight its ability to keep up with the latest fashion trends. The reinvigoration of its brands is inspiring, fueling sales growth and consecutive market share gains. This, combined with the company’s disciplined approach and strategic focus, is anticipated to sustain robust financial growth.The company’s promising fiscal 2024 outlook and brand strength, combined with a relatively lower valuation than peers, present an appealing investment opportunity for those looking to invest in this profitable apparel retailer. Existing shareholders can anticipate solid long-term returns. The company has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Abercrombie & Fitch Company (ANF): Free Stock Analysis Report Deckers Outdoor Corporation (DECK): Free Stock Analysis Report Nordstrom, Inc. (JWN): Free Stock Analysis Report The Gap, Inc. 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