NEW YORK ( TheStreet) -- Gap (NYSE: GPS) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, attractive valuation levels, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • GPS's revenue growth has slightly outpaced the industry average of 6.5%. Since the same quarter one year prior, revenues slightly increased by 2.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Specialty Retail industry and the overall market, GAP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 55.45% to $328.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 14.24%.
  • 41.20% is the gross profit margin for GAP INC which we consider to be strong. Regardless of GPS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.60% trails the industry average.

The Gap, Inc. operates as a specialty retailing company. The company offers apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brand names. The company has a P/E ratio of 10.5, equal to the average retail industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Gap has a market cap of $10 billion and is part of the services sector and retail industry. Shares are down 15.8% year to date as of the close of trading on Wednesday.

You can view the full Gap Ratings Report or get investment ideas from our investment research center.
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