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Office Depot, Inc. (ODP), whose colleagues include OfficeMax Incorporated (OMX) and Staples, Inc. (SPLS), was off by 1.4% at the time of this writing in afternoon trading. That put the share price below the $7 level. The stock is also well below the 52-week high of $9.19. What do the technical and fundamental factors tell us about the potential of this investment idea?
They're not telling us comforting things, in my opinion. The one-year chart doesn't look too bad. Like many other one-year charts, it shows a company that wants to head higher, albeit in a choppy way.
Oh, but take a peek at the extreme right edge of the graphic. Notice the big drop? That is not appealing in the least, and it should give every trader pause as it may indicate a big wave of bearishness is on the way.
What about the latest earnings report? According to Reuters, Office Depot earned 7 cents per share in the first quarter, a stat that misses analyst projections by a penny. Not cool, perhaps, but how was the year-over-year growth? On a reported basis, the company lost 20 cents per share in Q1 2009, but according to the actual press release, there were charges worth 30 cents per share included in that figure, so, after making the adjustment, we come out with a profit of 10 cents per share. Therefore, we've got an unimpressive growth scenario as well as a miss on our hands. Anything else? Let's see: there was a 1% decline in same-store sales in North America, and a 46% drop in cash from operations.
I don't like the story, either technically or fundamentally. I don't perceive a margin of safety intrinsic to the shares; I would be more interested in them after a further pullback. For now, put this one on the avoid list.
Disclosure: I don't own any company mentioned; positions can change without notice.
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