Last update on 2024-06-05

Gap (GPS) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Detailed Piotroski F-Score analysis of Gap (GPS) for 2023. Discover insights on profitability, liquidity, and efficiency with a final score of 5/9.

Short Analysis - Piotroski Score: 5

We're running Gap (GPS) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Gap Inc. (GPS) achieved a Piotroski F-Score of 5 out of 9 in a recent financial analysis. In terms of profitability, Gap saw negative net income but maintained a positive cash flow from operations, showcasing a strong cash generation ability despite losses. Liquidity analysis revealed an unfavorable increase in leverage but an improving current ratio. Share repurchases positively impacted shareholders. Although the gross margin declined, hinting at cost management issues, the asset turnover ratio improved, indicating better use of assets to generate sales.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score of 5 and the analysis, Gap Inc. presents a moderate financial position. There are positives such as strong cash operations and improving asset efficiency. However, the declining net income, increasing leverage, and contracting gross margins raise concerns about long-term profitability and financial health. Investors should consider these factors and possibly look deeper into the specific challenges Gap is facing before investing. It's worth monitoring but warrants caution due to mixed financial signals.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Gap (GPS)

Company has a positive net income?

The criterion checks if a company's net income is positive. Positive net income indicates profitability.

Analyzing the net income trend for Gap (GPS), we note that the 2023 net income stands at -$202 million, which is negative. This results in 0 points for the Piotroski criterion. Historically, Gap has seen fluctuations over the past 20 years, including notable negative net income figures recently in 2020 (-$1.083 billion) and 2021 (-$665 million) aside from positive years. Despite sporadic yearly gains, the recent trend signals financial struggles, which investors should consider. The deteriorating net income hints at underlying challenges the company is facing.

Company has a positive cash flow?

The Cash Flow from Operations (CFO) indicates how much cash a company generates from its core business activities. A positive operating cash flow is essential as it signifies a company is capable of maintaining and growing its operations without external financing.

The Cash Flow from Operations (CFO) for Gap Inc. (GPS) in 2023 stands at $607 million, which is positive. Over the past 20 years, Gap has consistently displayed a positive CFO except for 2018 and 2019, where the cash flow dipped considerably. Despite recent years showcasing a declining trend—from $1,282 million in 2020 to $607 million in 2023—the figure remains positive, earning Gap 1 point for this Piotroski criterion. However, the downward trend may signal potential concerns that need addressing to sustain long-term financial health.

Return on Assets (ROA) are growing?

Change in ROA criteria measures how the Return on Assets has improved or deteriorated over the past year, reflecting the company’s ability to convert investments into earnings.

The change in ROA for Gap (GPS) from 2022 to 2023 indicated a decrease from 0.0193 to -0.0167. This trend is negative, reflecting a deterioration in the company's ability to efficiently utilize its assets to generate earnings. Considering the industry median ROA, which has consistently been around the 0.38 mark, Gap's performance stands significantly lower, underscoring struggles potentially tied to operational challenges or strategic missteps. Overall, 0 points are awarded due to a declining ROA.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income is a criterion.

Comparing operating cash flow of $607 million vs. net income of -$202 million, the criterion is met. This indicates strong cash generation ability relative to earnings, despite accounting losses. It's favorable as it reflects robust cash operations sustaining the business.

Liquidity of Gap (GPS)

Leverage is declining?

Change in Leverage is a measure of how much a company's debt relative to its equity has altered over a period. It is important to monitor because increased leverage can indicate higher financial risk.

For Gap (GPS), the Leverage has increased from 0.4323 in 2022 to 0.4701 in 2023, indicating an increase in leverage. This is indicative of higher financial risk for the company, as a higher leverage ratio shows that the company has taken on more debt. Over the past 20 years, we observe a considerable fluctuation in Gap's leverage. While the leverage remained quite low from 2005 to 2017, it spiked significantly in recent years, surpassing 0.4 from 2020 onwards. Hence, for the criterion of Change in Leverage, the score is set to 0, reflecting an unfavorable trend towards increased financial risk.

Current Ratio is growing?

The Current Ratio measures the company's ability to cover short-term liabilities with short-term assets. It is a key liquidity indicator.

In 2023, Gap (GPS) has seen its Current Ratio increase to 1.418 from 1.2669 in 2022. This increment scores 1 point according to the Piotroski Analysis criteria, indicating an improvement in liquidity. Furthermore, when compared to the last 20 years, this ratio shows a significant recovery from a challenging 2022 (1.2669). However, despite this positive trend, Gap's current ratio in 2023 (1.418) still remains below the industry's median of 1.4722.

Number of shares not diluted?

The change in outstanding shares is a critical measure for investors, as it indicates whether the company is diluting its shareholders' equity by issuing more shares or returning capital by repurchasing shares.

In 2023, Gap (GPS) reduced its outstanding shares to 367 million from 376 million in 2022. This continuous trend of decreasing shares outstanding indicates a share repurchase program, which generally benefits existing shareholders as it can enhance the company's earnings per share (EPS) by reducing the number of shares among which profits are distributed. Over the past 20 years, Gap's outstanding shares have shown a clear downward trend, dropping from 881 million in 2003 to the current 367 million, suggesting a long-term commitment to returning capital to shareholders. This is seen as a favorable indicator, so we add 1 point for this criterion.

Operating of Gap (GPS)

Cross Margin is growing?

The Change in Gross Margin criterion compares the gross profit margins over consecutive years to determine whether the company has improved its profitability year-over-year.

In 2023, Gap reported a Gross Margin of 0.3432, which reflects a decrease when compared to the Gross Margin of 0.3981 in 2022. This decline in gross margin signifies that Gap's efficiency in generating profit from sales has deteriorated over the past year. Historically, Gap's gross margin has shown significant fluctuations, but compared to the industry median, which itself was 0.381 in 2023, Gap's gross margin appears subpar. Overall, this trend is concerning for investors and analysts as a decreasing gross margin indicates potential issues in cost management or pricing strategy.

Asset Turnover Ratio is growing?

Asset Turnover assesses a company's efficiency in using its assets to generate sales. Higher ratio indicates better performance.

The Asset Turnover for Gap (GPS) has increased from 1.2567 in 2022 to 1.2934 in 2023, which marks an improvement. This increment is a positive trend, earning the company 1 point for this criterion. Analyzing the additional data over the past 20 years, we observe that the company has seen variable trends, with its most robust performance occurring in the mid-to-late 2010s when the ratio exceeded 2.0. Nonetheless, the recent rise from 2022 to 2023, albeit incremental, suggests a recuperative trajectory from its sharp dip in 2020. Thus, the trend appears optimistic as the company shows operational improvement.