Gap Inc. Stock Buy Recommendation Reiterated (GPS)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Gap (NYSE: GPS) has been reiterated by TheStreet Ratings as a buy with a ratings score of A. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

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Highlights from the ratings report include:
  • Powered by its strong earnings growth of 51.06% and other important driving factors, this stock has surged by 54.55% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GPS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • GAP INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GAP INC increased its bottom line by earning $2.32 versus $1.57 in the prior year. This year, the market expects an improvement in earnings ($2.70 versus $2.32).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Specialty Retail industry average. The net income increased by 42.9% when compared to the same quarter one year prior, rising from $233.00 million to $333.00 million.
  • GPS's revenue growth trails the industry average of 18.1%. Since the same quarter one year prior, revenues slightly increased by 6.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.39, is low and is below the industry average, implying that there has been successful management of debt levels.

The Gap, Inc. operates as an apparel retail company. It offers apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix brands. The company operates through two segments, Stores and Direct. Gap has a market cap of $18.9 billion and is part of the services sector and retail industry. The company has a P/E ratio of 16.00, below the S&P 500 P/E ratio of 18.00. Shares are up 30.5% year to date as of the close of trading on Tuesday.

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

--Written by a member of TheStreet Ratings Staff.

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