GAP INC/THE (NYSE:GAP) appears to be flying under the radar despite its strong fundamentals.

Our stock screening tool has pinpointed GAP INC/THE (NYSE:GAP) as an undervalued stock. GAP maintains a solid financial footing. Furthermore, it remains attractively priced. Let's delve into the specifics below.

What does the Valuation looks like for GAP

ChartMill assigns a Valuation Rating to each stock, ranging from 0 to 10. This rating is calculated by analyzing different valuation elements, such as price to earnings and free cash flow, both in absolute terms and relative to the market and industry. In the case of GAP, the assigned 7 reflects its valuation:

• Based on the Price/Earnings ratio of 10.40, the valuation of GAP can be described as reasonable.
• GAP's Price/Earnings ratio is rather cheap when compared to the industry. GAP is cheaper than 81.82% of the companies in the same industry.
• GAP is valuated cheaply when we compare the Price/Earnings ratio to 28.18, which is the current average of the S&P500 Index.
• GAP is valuated reasonably with a Price/Forward Earnings ratio of 9.99.
• Based on the Price/Forward Earnings ratio, GAP is valued a bit cheaper than the industry average as 76.03% of the companies are valued more expensively.
• The average S&P500 Price/Forward Earnings ratio is at 20.81. GAP is valued rather cheaply when compared to this.
• Based on the Enterprise Value to EBITDA ratio, GAP is valued cheaply inside the industry as 83.47% of the companies are valued more expensively.
• Compared to the rest of the industry, the Price/Free Cash Flow ratio of GAP indicates a rather cheap valuation: GAP is cheaper than 85.12% of the companies listed in the same industry.
• The decent profitability rating of GAP may justify a higher PE ratio.

Looking at the Profitability

Discover ChartMill's exclusive Profitability Rating, a proprietary metric that assesses stocks on a scale of 0 to 10. It takes into consideration various profitability ratios and margins, both in absolute terms and relative to industry peers. Notably, GAP has achieved a 7:

• With a decent Return On Assets value of 7.10%, GAP is doing good in the industry, outperforming 77.69% of the companies in the same industry.
• GAP has a better Return On Equity (25.86%) than 83.47% of its industry peers.
• GAP's Return On Invested Capital of 10.68% is fine compared to the rest of the industry. GAP outperforms 74.38% of its industry peers.
• The Profit Margin of GAP (5.59%) is better than 79.34% of its industry peers.
• In the last couple of years the Profit Margin of GAP has grown nicely.
• GAP's Operating Margin of 7.42% is fine compared to the rest of the industry. GAP outperforms 77.69% of its industry peers.
• GAP's Operating Margin has improved in the last couple of years.
• GAP has a Gross Margin of 41.28%. This is in the better half of the industry: GAP outperforms 62.81% of its industry peers.
• In the last couple of years the Gross Margin of GAP has grown nicely.

Understanding GAP's Health Score

ChartMill employs its own Health Rating for stock assessment. This rating, ranging from 0 to 10, is calculated by examining various liquidity and solvency ratios. In the case of GAP, the assigned 5 reflects its health status:

• Looking at the Altman-Z score, with a value of 2.74, GAP is in the better half of the industry, outperforming 62.81% of the companies in the same industry.
• The Debt to FCF ratio of GAP is 1.43, which is an excellent value as it means it would take GAP, only 1.43 years of fcf income to pay off all of its debts.
• GAP's Debt to FCF ratio of 1.43 is fine compared to the rest of the industry. GAP outperforms 74.38% of its industry peers.
• A Debt/Equity ratio of 0.46 indicates that GAP is not too dependend on debt financing.
• With a decent Current ratio value of 1.60, GAP is doing good in the industry, outperforming 64.46% of the companies in the same industry.
• With a decent Quick ratio value of 0.96, GAP is doing good in the industry, outperforming 71.90% of the companies in the same industry.

Analyzing Growth Metrics

A key component of ChartMill's stock assessment is the Growth Rating, which spans from 0 to 10. This rating evaluates diverse growth factors, such as EPS and revenue growth, considering both past performance and future projections. GAP has received a 4 out of 10:

• GAP shows a strong growth in Earnings Per Share. In the last year, the EPS has been growing by 54.55%, which is quite impressive.
• When comparing the EPS growth rate of the last years to the growth rate of the upcoming years, we see that the growth is accelerating.
• The Revenue growth rate is accelerating: in the next years the growth will be better than in the last years.

Every day, new Decent Value stocks can be found on ChartMill in our Decent Value screener.

For an up to date full fundamental analysis you can check the fundamental report of GAP

Keep in mind

This is not investing advice! The article highlights some of the observations at the time of writing, but you should always make your own analysis and invest based on your own insights.