Those of you familiar with my retail reporting will probably be scratching your heads by now.

Seth? High on Gap (NYSE:GPS)? Is he licking toads again?

Let's get a couple of things straight from the top. I don't think Gap is a good retail stock by any normal measure. Competition is everywhere, from Abercrombie & Fitch (NYSE; ANF), Aeropostale (NYSE:ARO), and others on the teen side, to Express by Limited Brands (NYSE:LTD) and New York & Co. (NYSE:NWY) with the younger adults, to Chico's FAS (NYSE:CHS) with the more mature crowd. Sales are dwindling. Cash flow is drying up. Execs are fleeing like last month's skinny jeans, and no one at Gap HQ seems to have any idea about what to do. Oh, and the price hasn't gotten to what I consider a decent value: about $13 a stub.

Enter Goldman Sachs. Gap has retained the firm in order to help it "explore options," or "check out the posters in my dorm room" or whatever it is that struggling retailers do with snazzy investment bankers.

This pretty much looks like an admission that Gap is on the auction block and will end up in the hands of private equity. My colleague Nathan Parmelee has already explained how such a deal pretty much hoses investors out of what could be a much better long-term gain, if they could manage to sack the abysmal management and get the company fixed up. Alas, I don't see that happening, and with shareholders looking for any kind of return from their long-suffering shares, I suspect they'll go ahead and stick a knife in the goose to see whether they can get their golden eggs early.

That's why I believe someone's going to make a killing with Gap over the next year or two, I think. But instead of us oddlot sniffers, it'll probably be whoever Goldman Sachs brings to the table.

Gap's cash flow is still OK, even though the firm's sales have been stinking it up for years now. That suggests a fairly impressive underlying infrastructure, and an efficient design, sourcing, and distribution network that can maintain cash profitability even in lean times.

And that, of course, is exactly what private equity likes to get its grubby mitts on. You can bet that private-money sharks will waste no time sending management packing, trimming more fat, and probably overhauling the brands so that they resonate with consumers. (Hint for Gap: Changing your look every month doesn't work. Just take a peek in your competitors' windows. New stuff, same look. That's why they have loyal followings, and you've got zilch.)

Unfortunately, private equity may simply look to do the old strip'n flip: Make superficial changes, load up the balance sheet with debt, pay itself a giant dividend from the borrowed cash, then flip the shares back onto a gullible public market that lacks the patience to read registration statements.

So with a sale looking likely, I think a Gap pick in Motley Fool CAPS will likely yield you a decent bump, maybe 10%-20%, even from today's levels. If the buyout comes, it'll seem like a gift, but the real moola will be made by the big money. Sometimes, that's just the way it goes.

What do you think? Have I lost my mind? Will Gap continue to struggle? Let us know by joining the community and entering your underperform rating into the CAPS community intelligence database. But if my logic makes sense, come to CAPS with your outperform rating. Based on your inputs, we'll determine the best retailer for 2007 early next week.

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At the time of publication, Seth Jayson had a position in New York & Co. but in no other company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.