Is The Gap, Inc. (GAP) overvalued or undervalued?
Updated Nov 10, 2026 · hand-researched model · educational, not advice
At a recent price of $22.23, The Gap, Inc. (GAP) sits inside a range too wide to call either way: our valuation lenses put the business somewhere between $7.29 and $64.18 per share. They disagree too widely for us to state a single fair value. We publish the range rather than a midpoint because a number that precise would claim more than the methods can support. This is an educational model, not a price target or a recommendation.
The valuation discounts The Gap, Inc.'s projected free cash flows at a weighted-average cost of capital (WACC) of 12.3%, with a long-run terminal growth rate of 2.5%. About 64% of the enterprise value comes from the terminal value — the portion beyond the explicit forecast window — which is typical for a stable, cash-generative business and a reminder that small changes in the discount rate or terminal growth assumption swing the intrinsic value meaningfully.
Running the DCF in reverse — solving for the growth the current price already assumes — the market is implying roughly -4.6% annual revenue growth for GAP. Our base case instead compounds to about 1.7% a year over the same forecast, so the market is pricing in slower growth than our base case. The reverse-DCF is a quick sanity check: it reframes 'is this stock cheap?' as 'do I believe the growth the price requires?' rather than arguing over a single point estimate of fair value.
Sensitivity matters more than any single number. Across a reasonable band of discount-rate assumptions, GAP's modeled DCF value ranges from about $22.77 to $34.26 per share. If that range still sits below today's price, the market is optimistic relative to the model across the whole band; if it brackets the price, the stock is roughly fairly valued on our assumptions. Use the interactive slider to see exactly where your own cost-of-capital view lands.
How to read this page: the DCF fair value is what The Gap, Inc. would be worth if its cash flows grow as modeled and are discounted at the stated WACC. The assumptions table shows every input and its source; the reverse-DCF shows what the market believes; the sensitivity band shows how fragile the answer is. None of this is investment advice — it is a transparent, auditable framework for forming your own view of GAP's intrinsic value. Figures update as new filings and prices come in.
The assumptions behind GAP's DCF
| Input | Value | Source |
|---|---|---|
| Base-year revenue | $15,366,000,000 | Gap Inc. FY2025 10-K (accession 0001628280-26-018573, filed 2026-03-17): us-gaap:Revenues, FY2025 = $15,366M, +1.9% on FY2024's $15,086M (comparable sales +3%, 32 net company-operated store closures). Brand split from the 10-K revenue note: Old Navy $8,657M (56%), Gap $3,501M (23%), Banana Republic $1,916M (12%), Athleta $1,219M (8%), other $73M. Context that matters for the forecast: Gap Inc. sold $15.8B in FY2007 and $15.4B in FY2025 — nominal revenue has been flat for nearly two decades (XBRL Revenues/SalesRevenueNet history). CROSS-CHECK, latest quarter: H1 FY2026 net sales $7,148M vs $7,188M in H1 FY2025 (-0.6%); TTM to 2026-08-01 = $15,326M. |
| Base EBIT margin | 7.3% | Gap Inc. FY2025 10-K (accession 0001628280-26-018573, filed 2026-03-17): us-gaap:OperatingIncomeLoss FY2025 $1,115M / $15,366M = 7.26%, a clean GAAP year (management notes there were no adjusted metrics in FY2025). It already carries the IEEPA tariffs: the 10-K puts the net tariff hit at ~1.2 points of cost of goods for the year (Q4 alone ~2 points of merchandise margin). Operating-lease rent sits inside cost of goods and occupancy, so this margin is AFTER rent — consistent with leases being kept out of net debt. FY2024 was 7.37% ($1,112M / $15,086M). CROSS-CHECK, H1 FY2026: GAAP operating income $1,121M (15.7%) is inflated by three one-offs — a $313M interchange-litigation gain and a $50M donation in Q1, and a $417M net IEEPA tariff refund in Q2. Stripped out, H1 adjusted operating income was $182M + $259M = $441M, a 6.2% margin, against 7.7% GAAP in H1 FY2025 (the tariff drag landed in H1 this year and H2 last year). |
| Forecast revenue growth | 1% → 2% → 2% → 2% → 2% | Assumption — TickerWorth's 5-year explicit forecast |
| Risk-free rate | 5.2% | US 10Y Treasury constant maturity (FRED DGS10): 5.24% on 2026-10-01, the latest published observation. House input shared by every model. |
| Beta | 1.70 | Assumption — Yahoo 5Y-monthly beta via yfinance (2.059), Blume-adjusted: Published 5Y-monthly beta 2.059 (read 2026-10-03 via yfinance; my own regression on monthly S&P 500 returns gives 2.06). NORMALIZED DOWN to 1.70 = the standard Blume adjustment (0.67 x 2.06 + 0.33). This is GENEROUS — it lowers the discount rate and RAISES the value — so the reasons are stated: (1) the published figure is driven by a handful of earnings-day jumps that happened to land in strong market months (Nov-2023 +57% vs S&P +8.9%; Mar-2024 +45%; May-2024 +41%); dropping Gap's four earnings months per year gives 1.65; (2) on daily returns the 5Y beta is 1.46 (1.31 ex >10% days) and 2Y weekly is 1.08; (3) specialty-apparel peers publish 0.97-1.31 (ANF 0.97, AEO 1.31, URBN 1.26, LEVI 1.31). 1.70 still sits well above every peer. Gives a cost of equity of 13.74%. THIS IS THE BIGGEST JUDGEMENT IN THE MODEL: the published 2.059 gives $23.87 (still +6% vs the price); a peer-like 1.3 gives $32.04; the price is reached at a beta of ~2.25. |
| Terminal growth | 2.5% | Assumption — house default: House default 2.5%, kept for comparability. FLAG — it is generous for Gap: nominal revenue was $15.8B in FY2007 and $15.4B in FY2025, roughly zero growth for eighteen years, through store closures and brand shrinkage (Banana Republic, Athleta). 2.0% takes ~$0.80/share off, 1.5% ~$1.55. The model's value only falls to the price at a terminal rate of about -1.2%, so this choice does not decide the sign of the gap. Well below the 12.34% WACC. |
| Diluted shares | 362M | Gap Inc. Q2 FY2026 earnings release, 8-K Ex-99.1 (accession 0001628280-26-059262, filed 2026-08-27): Q2 FY2026 weighted-average diluted shares, 362M (the release reports millions only). Conservative: buybacks are running hard — $601M repurchased in H1 (ASR 8.3M shares + 9.3M open-market in Q2) — so outstanding shares were 351.3M at 2026-08-21 and management guides a full-year diluted average of ~367M. Using the 362M weighted figure rather than ~358M (outstanding plus typical dilution) understates per-share value by ~1%. |
| Market price | $22.23 | Delayed quote · as of 2026-11-10 05:03 UTC |
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