Enterprising Investor Forum

Gap, Inc. Tuesday, August 21, 2007

Is Gap (GPS) finally getting their act together and most of all is the new management going to convince investors that they are going to manage to do the company justice and finally reward all the patient shareholders that have stuck with this company through difficult times?

Earnings for the fiscal second-quarter will be reported on Thursday and even though we usually do not pay much attention to the financial community, we couldn’t help but notice that two analysts have upgraded the stock in August, one of them with a “Strong Buy”. This means that management if starting to make some progress and that key fundamentals are starting to prevail over the overall bad sentiment surrounding this company.

Why are we talking about Gap? Well, there is a lot of talk about this company being impossible to fix or even some people believing that they will have to file for bankruptcy. We believe that these opinions are not even worth commenting on BUT also feel that it could be a good opportunity to profit from market folly.

Naturally, everyone is entitled to their own opinion but we find the fact that the company has a great balance sheet quite interesting: virtually no debt, generates a lot of free cash flow and has a large cash position. Furthermore, it continues to act responsibly towards shareholders through repeated stock repurchases.

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