Up 40% in 2021, Will Gap Stock Continue to Rally?

Gap (GPS) has been on fire to start the year. Investors clearly believe GPS will soar to new heights with the reopening of society. GPS's Gap, Old Navy and Banana Republic are classic Americana brands that are popular all around the world.

GPS has nearly 4,000 stores. GPS stores sell clothing made by the Gap as well as other brands. Though few know it, GPS products are sold under a variety of brands. It also recently teamed up with Kanye West to introduce a new line of clothing.

Does GPS have the potential to move even higher in ’21? Will investors take profit off the table, causing GPS to decline? Let’s find out.

GPS’s Recent Rise

Though stocks as a whole dipped earlier this month, GPS climbed 5% during the market-wide selloff. GPS spiked as a result of its fourth quarter financial results for the year gone by. GPS comparable sales were stagnant during the quarter. However, GPS enjoyed a nearly 50% increase in web-based sales. This is particularly good news considering GPS sales at store locations dropped by nearly 30%. All in all, GPS's aggregate revenue was down 5% in the quarter, largely because sales declined at Banana Republic and Gap stores. However, GPS reported sales gains from its Athleta and Old Navy stores.

It is clear that GPS executives' decision to close stores that were not turning a profit in favor of focusing on digital sales is working out. There is even more reason for investor enthusiasm thanks to the company's optimistic forecast for '21. If everything goes according to plan, GPS sales will soar by 10-20% in the second half of the year as the pandemic finally reaches a conclusion.

Though GPS is no longer the dominant force in apparel within the United States market, it appears as though the stock bottomed out this past March. In fact, the stock closed out the tumultuous year with an overall gain of 15%. The bottom line is it does not matter if GPS resumes its position atop the throne of apparel companies. Even if GPS's Old Navy sales dwindle, there is hope in the form of emerging brands such as the company's Athleta, which currently accounts for about 6% of all revenue. Investors should also be encouraged by the fact that nearly one-quarter of all GPS sales are digital, meaning if the pandemic were to continue to drag on, the company would continue to make money.

The Analysts’ Take on GPS

The top analysts have mixed opinions of GPS. The average analyst price target for the stock is $24.82, meaning there is 3.54% downside potential. The analysts' high target for the stock is $30 while the low is $19. Of the 21 analysts who have issued recommendations for GPS, 17 consider it a hold and four consider it a Buy.

GPS POWR Ratings

GPS has an overall Rating of C which translates to a Neutral grade. The stock has B grades in the Momentum and Sentiment components of the POWR Ratings along with a C grade in the Growth component. Click here to find out how GPS fares in the Value, Quality and Stability components. GPS has a year-to-date price return of 46.66%, a six-month price return of 81.43% and a one-year return of 371.50%.

Of the 66 publicly traded companies in the Fashion & Luxury space, GPS is ranked 41st. Click here to learn more about the stocks in this industry.

Will the Rally Continue?

GPS has had a big run in recent months. Now, there's increasing concern about another surge in case counts and more restrictions due to more contagious strains coming from the UK and Brazil. Thus, it's a good time for investors and traders to exercise patience and wait for lower prices before entering.

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