Gap Inc (NYSE: GAP) shares plunged some 20% on Friday, rattled by concerns over tariffs and their potential impact on profit margins.
However, according to Matt Boss, a retail analyst at JPMorgan and an Extel Analyst Hall of Famer, the market is overreacting—and there’s a compelling case to buy the dip in Gap stock.
Why did Gap shares fall?
Today’s selloff in GAP shares was triggered by investor fears over an estimated $150 million in incremental tariffs hitting Gap and its brands like Old Navy.
This tariff burden has been factored into the stock price at a low double-digit multiple, equating to roughly $5 to $6 in equity value removed from the shares, Boss explained.
Despite these concerns, Gap reported solid fundamentals in its latest quarterly results, with same-store sales up mid-single digits at core Gap and low single digits at Old Navy.
The company also outlined an expected 8% to 10% multi-year bottom-line growth driven by steady sales gains.
Where the market is wrong
Matt Boss emphasized that tariffs are far from a new issue for Gap stock and its retail peers, many of whom have been aggressively reducing their exposure to China, traditionally a major source of tariff risk.
“Gap will exit this year with only 3% of its sourcing coming from China,” the JPM analyst revealed in a CNBC interview today, adding “on average, our group has a high single-digit China impact today, down from 20% in 2019.”
Retailers are mitigating tariff pressure through diversified sourcing, strategic pricing adjustments, and operational efficiencies.
Some companies are cautiously implementing low to mid-single-digit price increases, while others are waiting to see the final tariff rates before passing costs onto consumers.
JPMorgan sees opportunity
Despite recent volatility, Boss remains optimistic on Gap’s turnaround story and rates the stock as overweight.
He believes fair value lies in the mid-$30s for GAP shares, well above current prices, contingent on management’s execution of its plan.
Pullbacks like the recent selloff, he said, create compelling buying opportunities for investors willing to look beyond short-term tariff noise.
While tariffs have rattled the market, the fundamental outlook for Gap stock and other well-managed retailers remains intact.
As Matt Boss notes, investors should see the recent selloff in GAP not as a warning sign but as a buying opportunity in a sector undergoing selective, durable recovery.
Other Wall Street analysts agree with JPM’s view on GAP shares as well, given the consensus rating on the multinational clothing and accessories retailer currently sits at “overweight”.
Analysts have an average price target of a little over $27 on Gap Inc, which indicates potential for a more than 20% upside from current levels.
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