GAP vs. DECK: Evaluating the Better Value Stock in the Apparel Sector

The apparel sector has seen a resurgence in investor interest, with two prominent players-Gap (GAP) and Deckers (DECK)-emerging as focal points for value-oriented strategies. While both companies have demonstrated resilience in 2024, their divergent financial profiles and growth trajectories warrant a closer look. This analysis evaluates their fundamental valuation metrics and earnings momentum to determine which stock offers a more compelling value proposition.

Fundamental Valuation: Price-to-Earnings and Price-to-Book Ratios

Valuation metrics often serve as the cornerstone of value investing. Gap's forward P/E ratio of approximately 12.07 in 2024 stands in stark contrast to Deckers' elevated forward P/E of 35.53, a figure that suggests DECK is significantly overvalued relative to its earnings. This disparity is further amplified by their PEG ratios, which account for growth expectations. Gap's PEG ratio of 1.09 indicates a more balanced valuation, whereas DECK's PEG of 2.74 implies that its high price tag is not fully justified by anticipated earnings growth.

The price-to-book (P/B) ratio reinforces this trend. Gap trades at a P/B of 2.90, while DECK's P/B of 13.28 reflects a premium to its book value. For investors prioritizing affordability, Gap's lower P/B ratio suggests a more conservative valuation, aligning with its historical role as a value play in the sector.

Leverage and Profitability: Debt-to-Equity and Return on Equity

Both companies maintain relatively low debt-to-equity ratios, with Gap at 0.41 and DECK at 0.11. These figures indicate minimal financial risk, though DECK's even lower leverage underscores its stronger balance sheet. However, profitability metrics tell a different story. Deckers' ROE of 41.75% in 2024 far outpaces Gap's ROE of 29.04%, highlighting DECK's superior ability to generate returns for shareholders. This gap in ROE is particularly striking given DECK's consistent upward trend in profitability, with its ROE climbing from 36.04% in fiscal 2024 to 41.19% by late 2025.

Earnings Momentum: Revenue and EPS Growth

Deckers' 2024 results were marked by robust growth, driven by its HOKA and UGG brands. Annual revenue surged 18.2% to $4.288 billion, while diluted EPS jumped 50.46% to $4.86. This performance reflects DECK's ability to capitalize on niche markets and premium pricing. In contrast, Gap's revenue growth was more modest, increasing by 1% to $15.1 billion, though its diluted EPS rose sharply by 64.18% to $2.20. While Gap's EPS growth is impressive, DECK's revenue expansion and brand-specific momentum suggest a stronger near-term trajectory.

Strategic Implications for Value Investors

The data paints a nuanced picture. Gap's lower valuation multiples and stable earnings growth make it an attractive option for risk-averse investors seeking undervalued stocks. However, DECK's superior ROE and dynamic revenue growth, particularly in high-margin segments like HOKA, position it as a compelling long-term play for those willing to tolerate its higher P/E ratio.

For value investors, the key lies in aligning these metrics with strategic goals. If the focus is on immediate affordability and margin expansion, Gap's metrics are more favorable. Conversely, if the priority is capturing growth in a high-margin, brand-driven sector, DECK's performance and profitability metrics justify its premium valuation.

Conclusion

Both Gap and Deckers have demonstrated resilience in 2024, but their financial profiles cater to different investor priorities. Gap's conservative valuation and operational efficiency make it a safer bet in a volatile market, while DECK's profitability and brand-driven growth offer higher upside potential. As the apparel sector continues to evolve, investors must weigh these factors against their risk tolerance and growth expectations.