Retailers have been a mixed bag based on third-quarter earnings. Some retailers have reported strong numbers while others have seen a big miss. That’s true whether the retailer is a big box store, a specialty retailer, or an apparel retailer.
Investors looking for guidance this holiday season should look for a retailer that is still inexpensive but can continue to grow. One indication of further growth is a company that’s already seeing positive momentum going into the final weeks of the year.
For instance, retailer The Gap (GAP) just beat on earnings, and also raised its guidance for the full year.
While shares have popped higher and are now up over 30% in the past year, the company still looks like a value play. Shares trade at 11 times forward earnings, and at less than 0.6 times their price-to-sales.
Improving earnings and revenue growth will likely lead to a higher market valuation for investors in the quarters ahead. And with customers interested in The Gap’s products now ahead of the holiday season, shares are likely to trend higher into next year.
Action to take: Investors may like Gap shares here as both a value and a momentum play. Shares can likely push higher to $30 and retest their old 52-week highs over the coming months.
At current prices, The Gap also pays a 2.7% dividend.
For traders, the March 2025 $30 calls, last trading for about $1.15, could see mid-double-digit returns from a further trend higher in shares into next year.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.