Will Staples Survive?

With shares of Staples (NASDAQ:SPLS) trading at around $13.42, is SPLS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Staples is in trouble. It might not look that way now, but Staples is trapped in a fading industry, and outside entities are encroaching on its territory. For example, Wal-Mart Stores Inc. (NYSE:WMT) offers office supplies, and it will eventually grow in this area. This is bad news for Staples considering Wal-Mart has a larger customer base and more affordable products. The quality might not be as good, but today’s shoppers are looking for bargains more than anything else.

Wal-Mart’s ultimate goal is to conquer every industry possible. It will continue to grow and steal market share from others. It has an extraordinary list of victims already. Even if Staples were to find a way to compete with Wal-Mart, and Target Corp. (NYSE:TGT), how would it compete with online retailers such as Amazon.com Inc. (NASDAQ:AMZN)? Staples has gone to the extent of installing lockers for Amazon in its stores. Staples feels that this will lead to more exposure to Amazon customers. However, this is more likely to backfire as it also exposes Staples customers to Amazon.

If the Office Depot (NYSE:ODP) and OfficeMax Incorporated (NYSE:OMX) merger is completed, then it’s likely to help Staples in the short to medium term. Over the long haul, Staples will still find itself in a dying industry.

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The chart below compares fundamentals for Staples, Office Depot, and OfficeMax. Staples has a market cap of $8.90 billion, Office Depot has a market cap of $1.11 billion, and OfficeMax has a market cap of $1.00 billion.

SPLS

ODP

OMX

Trailing   P/E

N/A

N/A

2.43

Forward   P/E

9.44

29.92

12.81

Profit   Margin

-0.86%

-0.72%

6.02%

ROE

-2.44%

-7.17%

50.10%

Operating   Cash Flow

$1.22 Billion

$179.33 Million

$185.20 Million

Dividend   Yield

3.60%

N/A

0.70%

Short   Position

11.20%

18.50%

N/A

 

The fundamentals for Staples have weakened. Let’s take a look at some more important numbers prior to forming an opinion on this stock.