The Gap stock price rose sharply earlier this month when the company reported encouraging financial reports. It rose to a high of $25.87 on November 22, its highest level since June 12 of this year. It remains in a local bear market after falling by 20% from its highest level this year.

The Gap stock in the spotlight amid market share gains

GAP shares have been in the spotlight in the past few months as investors watched its ongoing turnaround amid a soft retail environment. 

The most recent results showed that the company was gaining market share across its brands, which include firms like Gap, Banana Republic, Old Navy, and Athleta.

These results showed that its net sales rose by 2% in the third quarter to $3.8 billion, while its comparable sales were up by 1%. 

The company is also doing well in terms of profitability as its gross margins rose to 42.7%. Most importantly, it is managing its inventory well. The results showed that its inventory dropped by about 2% to $2.33 billion.

Most parts of The Gap’s business did well in the third quarter. Old Navy’s net sales rose by 1% in the third quarter, while Banana Republic rose by 2%. Gap’s sales were up by 1%, while Athleta jumped by 4%.

Athleta is The Gap’s answer to Lululemon Athletica and is one of the fastest-growing brand in the athleisure industry. 

Analysts are generally optimistic about GAP’s business trajectory. The average revenue estimate for the year is about $15 billion, a 0.73% increase from 2023. Its estimated revenue for the coming year is $15.24 billion, up by 1.63% on an annual basis. Gap often does better than expected in most cases.

Most importantly, The Gap’s earnings are expected to continue improving. The annual earnings per share estimate will rise from $1.34 in 2023 to $2.01 this year, followed by $2.09 in the next financial year. 

Most analysts have a neutral view of The Gap, with those at BMO and Evercore having an outperform rating. Wells Fargo has an overweight rating, while Guggenheim has a buy one. UBS is less optimistic with a sell rating on the stock. The average Gap stock forecast is $28, higher than the current $24.25. 

One reason to be optimistic is that The Gap is a fairly cheap company. It has a forward price-to-earnings ratio of 12, much lower than the sector median is 20. Its trailing P/E multiple is 11.2, lower than the industry median of 19. 

Also, a discounted free cash flow (DCF) model shows that the company was trading at 28% below its current price of $24.

The Gap stock price analysis

GAP chart by TradingView

The daily chart shows that the GAP share price was trading at $24.25 on Friday, down from the year-to-date high of $30.3. It has remained above the ascending trendline that connects its lowest swings since January this year.

This trendline is notable because it was the neckline of the head and shoulders chart pattern, a popular bearish reversal pattern. 

Therefore, there is a risk that the stock will have a bearish breakout in the next few weeks. If this happens, it may drop to about $20, which is about 20% below the current level. 

$20 is also a notable level since it is along the neckline of the H&S pattern. A drop below that level will point to more downside, potentially to $18.6, the 50% retracement level. If this happens, it may drop to $15.9, the 61.8% retracement point, and 35% below the current point. The bearish view will become invalid if the stock rises above the right shoulder level at $26.

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