Thus far, it's been a pretty bad year for Motley Fool Stock Advisor selection Gap
It hasn't worked out that way. Same-store sales have been disappointing of late, as were second-quarter earnings. They don't seem to be getting any better, with the company's online stores offline for portions of what already was expected to be a slow quarter.
However, the company is buying back shares. I think it's a smart move, because I believe the stock is undervalued. Too often, companies buy back their stock to mitigate the effects of stock options, or because they believe the current growth will continue -- see Cisco
Through the first half of this year, Gap has repurchased approximately 71 million shares at an average cost of $21.14 for a grand total of $1.5 billion. This has reduced the weighted-average diluted share count for the last 12 months by 3.6%. Gap also has another $500 million available for share repurchases, and at prices around $18, I would be surprised if the company isn't busy eating up a large portion of this repurchase authorization.
Gap isn't perfect. The sales trends have been in the wrong direction for a while now, but the business still has a solid balance sheet and is not permanently impaired. Buying back shares now is a sound decision, especially with the stock cheap, the brands still intact, and the potential for growth to return in the future.
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