Gap Inc (GAP) stock analysis

P/E below its 5-year median

Gap's P/E of 6.4 is below its own 5-year median of 11.9.

P/E below the industry

Gap's P/E of 6.4 is below the Family Clothing Stores median of 12.0.

EV/EBITDA below its 5-year median

Gap's EV/EBITDA of 3.0 is below its 5-year median of 5.2.

P/B below the industry

Gap's price-to-book of 1.91 is below the Family Clothing Stores median of 2.58.

Trading below fair value

The share price of $21.53 is below our fair value estimate of $38.05.

Margin of safety over 20%

The price is 43.4% below fair value, more than the 20% cushion we look for.

Revenue growing under 10% a year

Revenue grew -0.5% a year over the last three fiscal years, short of the 10% we look for.

EPS growth over 3 years

Needs positive EPS three years ago and today.

Earnings acceleration

Needs positive net income now, a year ago and five years ago.

Growing slower than the industry

Revenue grew 1.1% over the last twelve months; the Family Clothing Stores median is 5.5%.

Guidance lowered

Gap lowered its full-year net sales outlook on Aug 27, 2026.

Gross margin improving

Gross margin was 43.3% over the last twelve months, against 41.1% a year earlier.

Return on equity under 15%

Return on equity was 33.8% over the last twelve months and averaged 14.8% over five years; we look for 15% on both.

Return on capital over 10%

Return on invested capital was 45.2%, above the 10% that usually covers the cost of capital.

Return on equity below the industry

Gap's return on equity of 33.8% is below the Family Clothing Stores median of 40.5%.

Earnings over 5 years

Needs positive net income five years ago and in the latest year.

Net margin above its 5-year average

Net margin was 8.1% over the last twelve months, against a 5-year average of 2.9%.

Net margin below the industry

Gap's net margin of 8.1% is below the Family Clothing Stores median of 9.3%.

Low debt

Debt is 37.8% of shareholders' equity, under the 40% we consider low.

Debt falling against equity

Debt to equity fell from 84.8% five years ago to 37.8%.

Debt covered by cash flow

Operating cash flow over the last twelve months equals 103% of total debt.

Interest well covered

Operating income covers interest expense 18.1 times.

Short-term assets cover short-term debts

Current assets are 1.82 times current liabilities.

Bankruptcy risk in the grey zone

The Altman Z-score is 2.80; above 3 is the safe zone and below 1.8 the distress zone.

Pays a dividend

Gap paid dividends worth 3.2% of the share price over the last twelve months.

Yield below Treasuries

The 3.2% yield is below the 4.4% on a 1-year Treasury.

Yield below the top quarter

The top quarter of US dividend payers yield 3.8% or more; Gap yields 3.2%.

Dividend was cut

The dividend per share fell by more than 10% at least once in the last 10 fiscal years.

Covered by earnings

Dividends take 20.0% of net income.

Covered by free cash flow

Dividends take 26.0% of free cash flow.