Is Gap a Buy Despite this Decline?

Despite lingering questions regarding the unexplained and rapid decline in Gap’s (NYSE:GPS) stock price on Tuesday, analyst remain bullish on the company.

After reporting on November 15 that its fiscal third-quarter profit jumped 60 percent on the strength of same-store sales growth and increasing margins, the company looked to be well-positioned. Furthermore, as the Associated Press noted in its coverage of the company, the retailer appeared “to be on the right track lately after replacing management, improving its products and amping up its marketing.”

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Then came Tuesday’s sell-off. Shares fell to their lowest levels since August, dropping approximately 9 percent from the opening price of $34.56 to $30.53 by mid-afternoon. The decline was the stock’s largest single-day drop in more than 12 months, and it pushed the stock price below the 10-day moving average.

There was no real reason for Gap’s stock to decrease by such a large amount, according to the AP. But analysts have put forward several theories. While acknowledging that there was a “lack of any real news,” Caris & Co. analyst Dorothy Lakner postulated that the company’s failure to increase its quarterly dividend payments or issue a special dividend ahead of next year’s tax hikes could have caused “some disappointment.” Even though Gap never said it would issue a special dividend payment, this assessment is “probably true,” according to StreetInsider.

However, the ambiguity surrounding the stock does not concern analysts at Jefferies, who see the decline as an opportunity to buy.

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