The Gap Inc. (NYSE: GPS) is a big and well-known apparel company with a market capitalization of about $13B. Its main business is designing, manufacturing, and selling apparel for men, women, and children.
Despite of the slowing revenue growth, Old Navy’s sales continue to grow fast, and in the near future, they will offset the negative growth of other brands.
During the last 52 weeks, GPS has been showing terrible results. Its stock price has decreased by circa 27%, while the Nasdaq Composite has increased by 5% (see Diagrams 2 and 3). The main causes for such results are lowering revenue growth on the one hand and the fact that company uses cash only for buybacks.
However, it looks like that the stock is worth buying, as it is a strong brand with a successful history to back it up. In fiscal 2006, the company hit a revenue ceiling of $16B and stopped growing. However, since the revenue bottom of $14.5B in fiscal 2010, Gap Inc. has shown nearly 16% growth, which can be a sign for future development.
Gap looks significantly undervalued, according to overall fundamental outlook, which is why we recommend buying the call options in the stock now.