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Are Investors Undervaluing Gap (GPS) Right Now?

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to...

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This story originally appeared on Zacks

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

- Zacks

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality value stocks on the market today.

Gap (GPS) is a stock many investors are watching right now. GPS is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with P/E ratio of 9.18 right now. For comparison, its industry sports an average P/E of 14.57. Over the past 52 weeks, GPS's Forward P/E has been as high as 164.26 and as low as -10.26, with a median of 19.45.

Investors will also notice that GPS has a PEG ratio of 0.82. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. GPS's industry currently sports an average PEG of 0.88. Over the last 12 months, GPS's PEG has been as high as 13.69 and as low as -0.85, with a median of 1.69.

Investors should also recognize that GPS has a P/B ratio of 2.88. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 5.25. Over the past year, GPS's P/B has been as high as 4.92 and as low as 2.75, with a median of 3.60.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. GPS has a P/S ratio of 0.52. This compares to its industry's average P/S of 0.72.

Value investors will likely look at more than just these metrics, but the above data helps show that Gap is likely undervalued currently. And when considering the strength of its earnings outlook, GPS sticks out at as one of the market's strongest value stocks.



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