Asymmetric Payoffs, Thracian Capital Management

Asymmetric Payoffs

Thracian Capital Management

Equity Bottom-Up

<p>The Gap is one of the cheapest stocks in an already depressed sector, trading at very low valuations (both absolute and historical), while generating strong free cash flow.</p><ul><li>Retail stocks have been under pressure in the US-- competition from both online and European fast-fashion companies (Zara, H&amp;M). Gap’s brands (Gap/Banana Republic/Old Navy) all have meaningful mall exposure, so additional gross margin pressure from the decline in mall shopping</li><li>But valuations are very low— EV/next year EBIT of 5.15x, P/E of 7.2x, EV/12M FCF of 11.2x</li></ul>

The Gap is one of the cheapest stocks in an already depressed sector, trading at very low valuations (both absolute and historical), while generating strong free cash flow.Retail stocks have been under pressure in the US-- competition from both online and European fast-fashion companies (Zara, H&amp;M). Gap’s brands (Gap/Banana Republic/Old Navy) all have meaningful mall exposure, so additional gross margin pressure from the decline in mall shoppingBut valuations are very low— EV/next year EBIT of 5.15x, P/E of 7.2x, EV/12M FCF of 11.2x

Gap Inc/The

Long GPS (The Gap, Inc.) Stock at $17.31