Wall Street's buyback binge continues. Earlier in this earnings season, we brought you news of buyback programs at retailers such as Staples (NASDAQ:SPLS) and Best Buy (NYSE:BBY). Last week, it was Nordstrom's (NYSE:JWN) turn. Next up: Gap (NYSE:GPS).

Concurrent with its Q2 earnings report, Gap announced Thursday that it has completed its most recent, $750 million share repurchase program, and it immediately authorized an additional $1.5 billion reup. Now, my Foolish colleague Alyce Lomax has already discussed one quirk of the program, where the Fisher family -- who own 17% of Gap's stock -- intend to sell a proportionate amount of their shares back to the company as part of this new buyback. What I want to do here today is a bit simpler. I want to crunch a few numbers, and see if we can get an idea of whether Gap can afford to buy back the shares at all -- and if so, whether it's a good idea.

Can it pay?
Financing the buyback should be a snap for the cash-rich Gap. The company sports the proverbial "rock solid" balance sheet, with about $2.2 billion more cash and short-term investments than debt on its books. Thus, Gap could easily cover the tab with cash on hand.

Not that it has to. With trailing free cash flow of $725 million, Gap could just as easily finance the entire buyback out of its own copious cash profits, and wrap up the repurchase within just a little more than two years. With no deadline announced for completion of the latest repurchase program, this would seem a viable option for Gap.

Should it pay?
Perhaps not. Before parroting the accepted wisdom that buybacks are always a good thing, it's best to take a least a quick glance at what a company will be getting for its money. In Gap's case, $1.5 billion in cash looks like it will buy about 82 million shares in a very richly valued stock. Check out how Gap compares to a few of its peers, valuation-wise:

P/E

Price-to-Free Cash Flow

Projected Growth Rate

Gap

20

20

11%

Abercrombie & Fitch  (NYSE:ANF)

17

71*

16%

American Eagle (NYSE:AEO)

14

15*

15%

J. Crew (NYSE:JCG)

30

42

23%
*Neither Abercrombie nor American Eagle bothered to include a cash flow statement in their earnings reports last week. Therefore, their free cash flows are based on last quarter's trailing-12-months numbers, rather than the most recent quarter (Gap and J. Crew, however, are current.)

Far from being the cheapest of the four companies sketched out above, Gap actually appears to be the most expensive. Weighed against its slower-than-anyone-else growth rate of 11%, the company's P/E and price-to-free cash flow ratios both border on 2.0 (twice the level that many value investors, yours Fool-y included, consider attractive). In contrast, both Abercrombie and American Eagle sport P/Es that verge on the magical PEG of 1.0 -- half as expensive.

Now, I suspect that my fellow Fools at Motley Fool Stock Advisor and Motley Fool Inside Value -- which have both recommended Gap to their subscribers -- will disagree with me on this point. They may posit that a turnaround is in the works at Gap (as indeed may be likely, judging from the firm's improved margins and returns on equity and capital last quarter). But one quarter does not an investment make. For my part, when I look at Gap, I see a stock that is overpriced relative to its prospects. What I do not see is any convincing reason for investors to follow management's lead and purchase shares of Gap.

So why do the wise Fools at Motley Fool Stock Advisor and Motley Fool Inside Value still recommend that you own the stock? It's no secret. Take a free trial to either newsletter, and we'll be happy to lay out our arguments for you in black and white.

Best Buy and American Eagle are also Stock Advisor selections.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.