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Gap (GAP): analysis traps
Where its figures could mislead a reader, and what to check before taking them at face value · Data: Q2 FY27, to Aug 1, 2026, filed Aug 28, 2026; rules v1.1
Gap (GAP): 1 rule of 10 triggered on the filings to Aug 1, 2026: low P/E at a cyclical peak = undervalued. 1 to review; 2 with insufficient data; 2 not applicable. Each is a question to verify, with the normal explanation that would produce the same figures.
Check these first
Low P/E at a cyclical peak = undervalued Triggered · severity medium · confidence medium
The shares trade at 6.5× this year's net income of $1.2B, but that profit is at a high: the median of the last eight fiscal years is $502M, on which the same market value is 16.2×. A low multiple of peak profit is not a low multiple of normal profit.
Innocent reading: The business has changed for good (a merger, a new line, a pricing regime) and the old years are not its normal.
A precise DCF value = the true value To review · confidence high
The DCF's point value is 51.15 a share (price 22.41); 73% of it is the terminal value, a number about years no one has seen. Moving operating margin by ±3 pts alone takes it from 37.71 to 64.60; across every method the research ran the range is 14 to 120. The value is a range; the decimals are not information.
Innocent reading: A stable, mature business with a narrow range of outcomes, where the point value is a fair summary.
Every rule
A01 FCF growth = the business improved Not triggered confidence high
Free cash flow did not rise ($1.0B → $823M): the trap does not arise.
The figures and how they are read
| Fiscal year before | FY25 |
| Fiscal year | FY26 |
| Operating cash flow, year before | $1.5B |
| Operating cash flow | $1.3B |
| Capex, year before | $447M |
| Capex | $470M |
| Free cash flow, year before | $1.0B |
| Free cash flow | $823M |
| Change in FCF | −$216M |
| Change in capex | $23M |
| Working capital: change in its cash contribution | −$230M |
FCF = operating cash flow − cash capex; ΔFCF = ΔOCF − ΔCapEx; the working-capital part is the change in the cash-bridge items (receivables, inventory, payables, accruals), with the sign of the cash flow statement
Source: FY26 (cash flow statement, fiscal year) · FY25 (cash flow statement, fiscal year before)
A07 Stock compensation added back = no economic cost Not triggered confidence high
Stock compensation is 1.1% of revenue: small enough that adding it back changes little.
The figures and how they are read
| Fiscal year | FY26 |
| Stock compensation | $162M |
| Revenue | $15.4B |
| SBC / revenue | +1.1% |
| Buybacks | $155M |
| Buybacks / SBC | 1.0 |
| Diluted shares, year before | 384.0M shares |
| Diluted shares | 384.0M shares |
| Diluted shares: change | +0.0% |
SBC / revenue from the cash flow statement's add-back; the diluted weighted share count year over year; buybacks from the financing section
Source: FY26 (stock compensation, buybacks and the diluted share count, fiscal year)
B02 Receivables growing = future cash is certain Insufficient data
fewer than five quarters with receivables and revenue on file (a year-over-year comparison needs five)
B08 Adjusted profit = economic profit Not triggered confidence low
Adjusted and GAAP EPS were within 10% of each other in the last 3 quarters (adjusted below GAAP).
The figures and how they are read
| Quarter / adjusted EPS / GAAP EPS / gap | 2025-10-31 / 0.62 / 0.62 / 0.0; 2026-04-30 / 0.38 / 0.9 / -1.368; 2026-07-31 / 0.52 / 1.38 / -1.654 |
| Quarters with adjusted ≥ 10% above GAAP | 0 |
| Quarters compared | 3 |
| Latest gap | -165.4% |
the analysts' 'actual' (usually the company's adjusted EPS) against GAAP net income ÷ diluted shares for the matching quarter; a gap of 10% or more counts (the stand-in until three releases' reconciliation tables are on file)
Source: 2025-10-31 (adjusted 0.62 vs GAAP 0.62) · 2026-04-30 (adjusted 0.38 vs GAAP 0.90) · 2026-07-31 (adjusted 0.52 vs GAAP 1.38)
C02 Low net debt = no refinancing risk Insufficient data
neither a maturity table nor the current portion of debt is on file
D03 EPS growth = profit growth Not triggered confidence high
EPS rose 143% and net income rose 132% in Q2 FY27; the share count fell 4.5%: EPS growth follows profit growth.
The figures and how they are read
| Quarter | Q2 FY27 |
| Quarter before | Q2 FY26 |
| EPS, year before | $0.57 |
| EPS | $1.38 |
| Net income, year before | $216M |
| Net income | $501M |
| Diluted shares, year before | 379.0M shares |
| Diluted shares | 362.0M shares |
| EPS growth | +142.8% |
| Net income growth | +131.9% |
| Diluted shares: change | -4.5% |
| eps from profit | $0.75 |
| eps from share count | $0.06 |
EPS and net income against the same quarter a year earlier; the EPS bridge attributes the change to profit first, then to the share count (the order is fixed and disclosed)
Source: Q2 FY27 (net income, diluted shares, EPS) · Q2 FY26 (the same quarter a year earlier)
E02 Low P/E at a cyclical peak = undervalued Triggered severity medium · confidence medium
The shares trade at 6.5× this year's net income of $1.2B, but that profit is at a high: the median of the last eight fiscal years is $502M, on which the same market value is 16.2×. A low multiple of peak profit is not a low multiple of normal profit.
The figures and how they are read
| market value | $8.1B |
| net income ttm | $1.2B |
| pe ttm | 6.50 |
| net income median fy | $502M |
| pe mid cycle | 16.20 |
| net income peak fy | $1.0B |
| years | FY19 / 1003.0; FY20 / 351.0; FY21 / -665.0; FY22 / 256.0; FY23 / -202.0; FY24 / 502.0; FY25 / 844.0; FY26 / 816.0 |
| down years in window | 4 |
P/E on the trailing twelve months' net income against the P/E on the median net income of the last eight fiscal years (a mid-cycle stand-in); 'at a peak' = this year's profit at or above 90% of the best year and at least 1.3× the median
Source: Q2 FY27 (net income, trailing twelve months)
What would explain it innocently
- The business has changed for good (a merger, a new line, a pricing regime) and the old years are not its normal
- The market is right that profit will fall, and the price already says so
- Capacity has left the industry, so the cycle's trough is higher than before
What to look for in the filing
- Where the industry's prices and volumes stand against their own history
- Capacity on order across the industry
- Management's view of the cycle in the MD&A
What would show the trap does not apply
- Profit holds at this level through the next two years (the eight-year peak was a new base, not a top)
- The industry's capacity and prices stay where they are rather than reverting
Look again: next filing.
E07 A precise DCF value = the true value To review confidence high
The DCF's point value is 51.15 a share (price 22.41); 73% of it is the terminal value, a number about years no one has seen. Moving operating margin by ±3 pts alone takes it from 37.71 to 64.60; across every method the research ran the range is 14 to 120. The value is a range; the decimals are not information.
The figures and how they are read
| dcf value | 51.15 |
| price | 22.41 |
| terminal value share | +73.2% |
| swing by input | Operating margin / ±3 pts / 37.71 / 64.6; Revenue growth (each year) / ±5 pts / 42.29 / 61.82; WACC / ±1 pt / 44.66 / 60.05; Tax rate / ±5 pts / 47.79 / 54.52 |
| range all methods | 13.87; 120.39 |
the DCF's point value against the share of it that is the terminal value and the value at each input moved by one step (growth ±5 pts, WACC ±1 pt, margin ±3 pts …); the range across every method the research ran
Source: 2026-11-08 (valuation research)
What would explain it innocently
- A stable, mature business with a narrow range of outcomes, where the point value is a fair summary
- The inputs that matter most are themselves well known (a regulated return, a long contract)
What to look for in the filing
- Which input you believe differs from the research's and why
- What the price implies for growth (the reverse DCF on the fair-value page)
What would show the trap does not apply
- The DCF's value is robust to the terminal growth and discount rate (the range's low end is still above the price)
- The company's cash flows over the next three years track the DCF's early years
Look again: next filing.
J06 A bank's low P/E and high profit = safe Not applicable
not a bank
J08 A REIT's low net income = the dividend is unsafe Not applicable
not a REIT
What the statuses mean
Triggered: the filings show the pattern; read the normal explanations and the missing evidence before concluding anything. To review: one quarter or a weak signal; a reader's judgement, not a pattern. Not triggered: the pattern is absent on these figures. Insufficient data: the filings read so far do not hold what the rule needs; this is not a clean bill. Not applicable: the rule is not meant for this kind of company (a bank's working capital, a loss-making quarter's EPS growth). Out of date: the latest filing is more than fifteen months old.
Severity is what the pattern could mean for cash, value or solvency; confidence is how reliable the inputs and the reading are. The two are kept apart.
Record a view
A reader's judgement, grounds, what would change it and the next review; kept in the browser (needs JavaScript).
Every rule and the companies it triggers on → Gap: cash flow → Earnings quality score →
Each rule reads the company's own filings by a fixed formula and says what would explain the same figures innocently. A triggered rule is a question to verify, not a finding of manipulation, and not a view on the stock. Missing data is shown as missing, never as clear. Not investment advice.