GAP INC (GAP) Stock Analysis
GAP INC (GAP) Stock Analysis
Overall Grade: F (Concerning)
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GAP INC faces challenges in financial performance that warrant careful analysis.
Key Metrics:
| Metric | Value | Context |
|---|---|---|
| ROIC | 36.9% | Above industry average |
| FCF Margin | 5.1% | Healthy cash flow |
| Debt/Equity | 0.4x | Conservative leverage |
Investment Thesis: Strong return on invested capital of 36.9% suggests durable competitive advantages and efficient capital allocation.
What is GAP INC's Profitability and ROIC?
GAP INC generates strong returns on invested capital at 36.9%, indicating efficient capital allocation and competitive advantages. Gross margin of 41.1% with operating margin at 7.7% reflects the company's strong market position.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 36.9% | Excellent | Strong capital efficiency |
| Return on Equity (ROE) | 27.6% | Excellent | Efficient use of shareholder equity |
| Gross Margin | 41.1% | Good | Strong pricing power |
| Operating Margin | 7.7% | Adequate | Moderate operational efficiency |
How Strong is GAP INC's Cash Flow Quality?
GAP INC generated $769.0M in free cash flow over the trailing twelve months, representing a 5.1% margin. Cash earnings quality is strong, with operating cash flow exceeding net income by 1.4x.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Free Cash Flow Margin | 5.1% | Adequate | Healthy cash generation |
| Free Cash Flow (TTM) | $769.0M | Good | Positive cash generation |
| OCF/Net Income | 1.4x | Excellent | High earnings quality |
| FCF Consistency (8Q) | N/A | Warning | Variable cash flow |
What is GAP INC's Financial Health?
GAP INC maintains a net cash position of $969.0M, providing significant financial flexibility.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Debt to Equity | 0.4x | Good | Conservative capital structure |
| Net Cash Position | $969.0M | Excellent | Net cash positive |
Is GAP INC Stock Overvalued or Undervalued?
GAP INC trades at a P/E of 8.0x, representing a premium to the sector median of N/A.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| P/E Ratio | 8.0x | Adequate | Reasonable valuation |
| EV/Sales | 0.5x | Excellent | Attractive revenue multiple |
| Dividend Yield | 3.3% | Adequate | Meaningful income |
Sector Rankings
| Metric | Value | Percentile | vs Median |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 36.9% | Top 10% | 3.8x above |
| Free Cash Flow Margin | 5.1% | Top 50% | 1.6x above |
| Gross Margin | 41.1% | Top 50% | 1.0x above |
| Operating Margin | 7.7% | Top 50% | 1.5x above |
| Return on Equity (ROE) | 27.6% | Top 50% | 2.3x above |
| P/E Ratio | 8.0x | N/A | - |
Rating Thresholds
Return on Invested Capital (ROIC)
Measures how efficiently a company uses its debt and equity capital to generate profits. ROIC above 15% typically indicates a competitive moat.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Exceptional capital efficiency, strong competitive moat |
| Good | 12% - 20% | Above-average returns, sustainable competitive position |
| Adequate | 8% - 12% | Around cost of capital, moderate competitive position |
| Warning | 4% - 8% | Below cost of capital, value may be eroding |
| Red flag | < 4% | Significant capital destruction, fundamental issues |
Current: 36.9% (Excellent - Top 10% of sector (median: 9.8%))
Free Cash Flow Margin
The percentage of revenue converted to free cash flow. Higher margins indicate stronger cash generation and business quality.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Strong cash generation, high-quality business |
| Good | 10% - 20% | Healthy cash conversion |
| Adequate | 5% - 10% | Moderate cash generation |
| Warning | 0% - 5% | Thin cash margins, capital intensive |
| Red flag | < 0% | Cash burn, potential liquidity concerns |
Current: 5.1% (Adequate - Top 50% of sector (median: 3.2%))
Gross Margin
Revenue minus cost of goods sold as a percentage. Higher gross margins indicate pricing power and competitive advantage.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 50% | Strong pricing power and competitive moat |
| Good | 30% - 50% | Healthy margins, differentiated product |
| Adequate | 20% - 30% | Moderate margins, competitive industry |
| Warning | 10% - 20% | Thin margins, commodity-like business |
| Red flag | < 10% | Very thin margins, structural challenges |
Current: 41.1% (Good - Top 50% of sector (median: 40.9%))
Debt to Equity Ratio
Total debt divided by shareholders' equity. Lower ratios indicate more conservative financing and reduced financial risk.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 0.3x | Conservative leverage, strong balance sheet |
| Good | 0.3x - 0.7x | Moderate leverage, healthy financial position |
| Adequate | 0.7x - 1.5x | Elevated leverage, monitor closely |
| Warning | 1.5x - 3.0x | High leverage, increased financial risk |
| Red flag | > 3.0x | Excessive leverage, potential distress risk |
Current: 43.4% (Good)
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Lower P/E may indicate undervaluation, while higher P/E suggests growth expectations.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 15x | Attractively valued, potential opportunity |
| Good | 15x - 25x | Fair value for quality company |
| Adequate | 25x - 35x | Growth premium, justify with earnings growth |
| Warning | 35x - 50x | High expectations priced in |
| Red flag | > 50x or negative | Speculative valuation or losses |
Current: 798.3% (Adequate)
Frequently Asked Questions
Q: What is GAP INC's Return on Invested Capital (ROIC)?
GAP INC (GAP) has a trailing twelve-month Return on Invested Capital (ROIC) of 36.9%. This compares above the sector median of 9.8%. An ROIC above 20% indicates exceptional capital efficiency and strong competitive advantages.
Q: What is GAP INC's Free Cash Flow Margin?
GAP INC (GAP) has a free cash flow margin of 5.1%, generating $769.0 million in free cash flow over the trailing twelve months. A FCF margin between 5-10% is typical for capital-intensive businesses.
Q: Is GAP INC stock overvalued or undervalued?
GAP INC (GAP) trades at a P/E ratio of 8.0x, which is above the sector median of N/A. The EV/Sales multiple is 0.5x.
Q: Does GAP INC pay a dividend?
GAP INC (GAP) currently pays a dividend yield of 3.3%. This yield is moderate, suggesting a balance between income and growth reinvestment.
Q: How does GAP INC compare to competitors in Consumer Discretionary?
Compared to other companies in Consumer Discretionary, GAP INC (GAP) shows: ROIC of 36.9% is above the sector median of 9.8% (Top 7%). FCF margin of 5.1% exceeds the sector median of 3.2% (Top 39% of sector). Gross margin at 41.1% is 0.2 percentage points higher than sector peers. These rankings are based on MetricDuck's analysis of all Consumer Discretionary companies with available SEC filings.
Q: What warning signs should I watch for with GAP INC?
GAP INC (GAP) shows no major financial warning signs based on current metrics. However, investors should always monitor: 1) Margin compression trends, 2) Cash flow consistency, 3) Debt levels relative to cash generation, and 4) Changes in competitive positioning.
Data Source: Data sourced from 10-Q filed 2025-11-25. TTM metrics as of Q3 2025.
Methodology: Financial metrics calculated from SEC 10-K and 10-Q filings using standardized formulas. Sector comparisons use peer group based on SIC code.
This analysis is for informational purposes only and does not constitute investment advice.