The Contrarian Blog

The Gap Bounces Back

by Elizabeth Harrow 2/10/2012 1:35 PM
Stocks quoted in this article:
Publication: "Reuters"
Publication title: "Gap shares a value play despite drab sales"
Publication Date: 2/8/2012
Brief Summary:

This cautiously optimistic article suggests that The Gap, Inc. (GPS) "might still be a good retail stock to bet on this year," despite a recent trend of lackluster sales figures. Thanks to cost-cutting measures implemented over the past several years, GPS is sitting on a "thick stash of cash," and the stock's valuation is "relatively cheap" in comparison with some of its retail compatriots. Additionally, some upbeat analysts are pointing to a stabilization in the chain's flagging sales -- and hopes are high for the new, brightly colored spring line of apparel, which is expected to boast bigger mass appeal than last year's "ho-hum" offerings.

Contrarian Takeaway:

GPS is already in rebound mode on the charts, having racked up a robust 15.4% gain so far in 2012. The stock gapped higher on the heels of its Feb. 2 sales report, and barreled through resistance at $20.50 in the process. Going forward, this former technical ceiling could switch roles to act as support.

On the sentiment front, meanwhile, there's already plenty of negativity priced into GPS. Short interest accounts for a hefty 8.8% of the stock's float, or 4.5 times its average daily trading volume. In light of the recent bullish breakout on the charts, GPS could easily benefit as the weaker bearish hands rush to cover.

Along the same lines, Zacks reports that 23 brokerage firms maintain a "hold" or "sell" rating on the retail stalwart, compared to only five "buy" or better endorsements. As the fundamental and technical backdrop for GPS continue to improve, a round of upgrades could bring a fresh wave of buyers to the table.

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