Being so close to the teens may be a great strategy for a mall-based specialty retailer, but it's not so endearing a trait for a specialty retailer stock. That's where we start today's story -- where denim- and khaki-folding giant Gap (NYSE:GPS) finds itself. Save for a few temporary treks into the low $20s last year, shares of the retailer have spent the past four years trading mostly in the teens.

I don't need to wax pessimistic on Gap. That's Alyce's battering ram this week. Still, I felt that a little color was necessary, since the stock is trading at a third of its peak price from six years ago.

Were Gap shares overpriced then? Clearly. Are Gap shares undervalued now? I think so. Just ask yourself: Is Gap one-third of the company it used to be? That's the real question here. I'd bet a pair of Old Navy socks that Alyce is going to dig into executive defections and lackluster results at the struggling apparel behemoth. We know that. It's baked into the depressed share price.

But let's make a quick comparison between Gap of today and the Gap that investors valued three times higher just six years ago.

Fiscal 1999 Fiscal 2005
Net Sales $11.6 billion $16 billion
Earnings $1.1 billion $1.1 billion
Net Margins 9.7% 6.9%
Store Count 3,018 3,053
Div. Yield 0.2% 1.8%
Book Value $2.2 billion $5.4 billion

In many ways, today's Gap is bigger and better than in its Wall Street darling days. The two main things going for the 1999 incarnation were its faster growth and its ability to milk more profit out of every dollar it rang up in sales. Today's Gap isn't expanding at a breakneck pace, but that's not necessarily a bad thing.

After scaling back in recent years, Gap began gradually increasing its store count last year. It expects to close out this year with 3,093 stores. That has mostly meant closing poorly performing Gap locations and opening more Old Navy units, which are resonating better with shoppers smitten by the cheap-chic success of Target (NYSE:TGT).

That leaves Gap's Banana Republic concept running in place, and it's got a wild card in Forth & Towne. As a concept gunning for an older female audience like Chico's FAS (NYSE:CHS), Ann Taylor (NYSE:ANN), and Talbots (NYSE:TLB), Forth & Towne holds potential, though it's so new that it commands just 5 of Gap's 3,053 locations.

So where does that leave the Gap that Alyce and I are battling over this week? Not as shabby as some may lead you to believe. The company closed out the year with $951 million in free cash flow. It can be had at just 15 times earnings.

And if you don't want any of those Gap shares, the company will just buy them anyway. Gap spent $2 billion to repurchase 98.5 million shares in 2005. That comes after spending $1 billion to gobble down 48 million shares a year earlier. Buyback fever continues here, with $500 million earmarked for even more repurchases. If you hate companies that stick investors with dilution, consider that over the past year, Gap's fully diluted outstanding shares have shrunk from 968 million to 870.5 million.

Yes, comps fell by 5% last year, but that's no reason to fear the retail reaper. That was coming off a flat showing in 2004 and a 7% spike in 2003. This company is growing the right concepts and shrinking where it counts, doing a commendable job in keeping its inventory levels down.

I don't blame Alyce, Chrissie Hynde, and lobe-flicking short-sellers for being down on Gap. Even Philip Durell, the Inside Value guru who recommended the stock three months ago, doesn't expect the Gap revival to be evident to the naked eye.

"I do not expect Gap's turnaround to be visible before the second half of 2006, and perhaps not until 2007," he wrote at the time.

However, the pieces are there. They just need some time to come together. Don't be tricked by silly marketing campaigns, roller-coaster comps, and executive turnover that make it seem as if the company is far removed from its former glory. It's closer than you think, especially if you're the patient and thrifty kind.

It's why you can snap up shares in one of the biggest brands in retail at a price that would make the 2000 version of you deeply jealous.

Gap isn't the only stock that Philip is digging these days. His average value investing recommendation is trading 13.5%, better than 9.3% market average. You can learn more with a 30-day free trial subscription.

Think you're done with the Duel? You're not! Go back and read the other three arguments, then vote for a winner.

Longtime Fool contributor Rick Munarriz thinks that the company should combine its three non-Gap concepts into one -- Old Banana Towne. He doesn't own shares in any company mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.