Looking into the current session, Gap Inc. GPS shares are trading at $11.42, after a 7.23% rise. Moreover, over the past month, the stock went up by 27.83%, but in the past year, decreased by 34.73%. Shareholders might be interested in knowing whether the stock is undervalued, even if the company is performing up to par in the current session.

The stock is currently higher from its 52 week low by 117.11%. Assuming that all other factors are held constant, this could present itself as an opportunity for investors trying to diversify their portfolio with Apparel Retail stocks, and capitalize on the lower share price observed over the year.

The P/E ratio measures the current share price to the company's EPS. It is used by long-term investors to analyze the company’s current performance against its past earnings, historical data and aggregate market data for the industry or the indices, such as S&P 500. A higher P/E indicates that investors expect the company to perform better in the future, and the stock is probably overvalued, but not necessarily. It also shows that investors are willing to pay a higher share price currently, because they expect the company to perform better in the upcoming quarters. This leads investors to also remain optimistic about rising dividends in the future.

Depending on the particular phase of a business cycle, some industries will perform better than others.

Gap Inc. has a lower P/E than the aggregate P/E of 24.54 of the Apparel Retail industry. Ideally, one might believe that they might perform worse than its peers, but it’s also probable that the stock is undervalued.

P/E ratio is not always a great indicator of the company's performance. Depending on the earnings makeup of a company, investors may not be able to attain key insights from trailing earnings.