Although this ailing retailer is a recommendation of my colleagues at both Motley Fool Inside Value and Motley Fool Stock Advisor, I've been blowing raspberries at it for a while. As naughty as that may be, I've made no secret of my opinion, which is that at today's prices, Gap is not a value but a value trap.
Unfortunately for shareholders, Gap keeps doing things to prove me right.
Witness last month's same-store-sales results. Analysts already expected Gap to stink it up, but the 6% drop was about twice what was expected. The only highlight was that Banana Republic eked out a 3% gain.
But stack that up next to double-digit comps performances from the likes of American Eagle Outfitters
Let me put a finer point on it. Gap did worse than my official benchmark for lousy retailing these days, New York & Co.
On second thought, maybe not. The takeaway is this: Gap still doesn't have it together, yet it's priced as if everything is a-OK and right on the verge of a fix-up. If I assume that Gap will grow at a very modest rate -- much better than the actual shrinkage that's evident and ongoing -- I still make it out to be a $16 stock.
And since I don't believe Gap has got the plan to turn it around, there's no way I'd consider paying full price, let alone today's price. Gap could certainly surprise us and do much better, but that's not enough to make me take on the risk that it will do what looks more likely: continue to blow it.
I refer you to my first Law of Retail Inertia: "A retailer in suckage will tend to remain in suckage unless acted upon by a net force."
By the way, I've come across that law the hard way, which is why I don't ignore it. It's going to take major net force at Gap to reverse the trends, and I don't see it coming. Talk to me around $13 a pop. If I'm going to buy junky duds, I want the discount.
You might be surprised to learn that Seth's Inside Value comrades don't really mind his contrary opinion on Gap. You see, they realize that differences of opinions are what create value opportunities and that discussion is good for your investing brain. If you'd like a free trial to the world of investing like a grownup, it's just a mouse click away.
New York & Co. is a Motley Fool Hidden Gems recommendation.
Seth Jayson thinks it's OK to follow certain rules. At the time of publication, he had shares of Guess?, New York & Co., and American Eagle, but no positions in any other company mentioned. View his stock holdings and Fool profile here. Fool rules are here .