Click to EnlargeEarnings Date: Aug. 22
YTD Return: 44%
A similar tale can be told for another strong retail brand. Gap (GPS) has been booming so far this year — so much so that it made our list of the “5 Hottest Retail Stocks So Far in 2013” back in mid-July. Even then, though, there were concerns that any soon-to-be-reported earnings growth was already baked in.
Last quarter, Gap — the company behind its namesake Gap, plus Old Navy and Banana Republic — posted a 43% year-over-year improvement in profits, which was good for a 2-cent EPS beat and a solid stock boost. For the next quarter, analysts are expecting EPS of 59 cents — a penny more than they estimated 90 days ago, and representing 20% growth.
The stock’s impressive year-to-date climb, though, caused Piper Jaffray to downgrade the stock to “neutral” from “overweight” in mid-July on grounds that earnings increases were already considered in Gap’s price. And Gap’s price today remains around the same as it was when the analyst made its call — and only because of recent red tape.
Still, Gap is nowhere near as frothy as our first stock, Guess. If the stock’s relative softness continues up until earnings, GPS could be a prime buying opportunity in anticipation of a post-report boost.