Tuesday, May 24, 2011

The Gap Inc (NYSE: GPS) Q3 2011 Price Target

Recent price: 19.28$
P/E Ratio: 10.50
3 Months Target Price: 23$

Company Description
According to Reuters, The Gap, Inc. is a global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. The Company operates stores in the United States, Canada, the United Kingdom, France, Ireland, and Japan. It also has franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores in many other countries worldwide. Under these agreements, third parties operate or will operate stores that sell apparel, purchased from the Company, under its brand names. Its United States customers can shop online at gap.com, oldnavy.com, bananarepublic.com, piperlime.com, and athleta.com.

Confidence Margins
Strong resistance $23.73 (+23%)
Light resistance $19.82 (+3%)
Light support $17.69 (-8%)
Strong support $16.62 (-14%)

After reporting earnings for the first quarter 2011, shares of The Gap Inc have plummeted to reach levels that offer a very attractive valuation to the company. Investors getting in right now will experience satisfactory returns by September 2011.

Entry strategy
For the cautious investor:
Buy the stock for 19.50$ or less.

For the risk-taking trader:
The September 2011 20$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 97$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 23$, or keep it until 24$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 23$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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