How does Gap Inc (NYQ:GPS) fare against the Piotroski F-Score?

Steering clear of disastrous investments is just as valuable as picking long-term winners - this is why successful investors such as Seth Klarman always advise prudent risk management. Take Gap Inc (NYQ:GPS), for example, which is an adventurous super stock company in the Consumer Cyclicals sector.

Gap Inc (NYQ:GPS) pays out a rolling 4.48% of its share price in dividend payments. For the fiscal year ended 02 February 2019, Gap Inc revenues increased 5% to $16.58B and net income before extraordinary items increased 14% to $1B, while Basic Earnings per Share excluding Extraordinary Items increased from $2.24 to $2.61.

It seems then that operationally, Gap is performing well. This is not the whole story however - there is the group's finances to consider as well. We can get a solid first impression of Gap's financial health by running it through the Piotroski F-Score test.

Why you need to know the Piotroski F-Score

This F-Score test is a simple indicator to highlight stocks showing the most likely prospects for outperformance amongst a basket of apparently undervalued companies.

The F-Score is made up of nine checks split up into three main areas of financial analysis. First is profitability, where it examines operating profits and cash flow to make sure the business can sustain itself and pay dividends. Then come three checks on the capital structure of a business, followed by a final look at the firm’s operating efficiency.

The great thing about the F-Score is that it essentially is an entire quality and fundamental momentum screen in a single number. Applying it as a filter on top of almost any strategy can help to increase returns and reduce risk.

Gap Inc (NYQ:GPS), its F-Score, and what you need to do about it

Stockopedia applies algorithms to its stream of financial data to automatically calculate the Piotroski F-Score for every stock on the market. It shows that Gap Inc (NYQ:GPS) scores 8 out of a possible 9. By investing in companies scoring 8 or 9 by these measures, Piotroski showed that, over a 20-year test period through to 1996, the return earned by a value-focused investor could be increased by an astounding 7.5% each year. Even better, it suggests that the company is well-placed to continue to pay out attractive dividends.

What does this mean for potential investors?

GAP has an F-Score that suggests it could be a promising investment candidate worthy of further research - but it's only a first step. Higher F-Score stocks can still have weaknesses and may trade at premium prices compared to other stocks. We've identified some areas of concern with GAP that you can find out about here.