Why Staples Is A Strong Buy In 2015

C) Growth Breakdown

There are a variety of different growth metrics that have been shown to predict stock returns. Most important among them is price momentum. Winning stocks keep winning, and losing stocks tend to keep losing. Staples growth profile is shown below:


Rumors of a potential merger with Office Depot have sent Staples up 51% in the last six months, after it had started the year off weakly. This six-month price performance puts it into the top 10% of the overall market over the last six months, reflecting its new-found status as a market leader. As we detailed in reports on Best Buy (BBY) and Kroger (KR), retail stocks have been leading the market recently as investors capitalize on the expected increase in consumer spending due to cheaper gas. While Staples big run has been mostly due to rumors of activism, they should benefit from the retail sector comeback as well. Overall, we feel that Staples is a "Strong Growth" company and will outperform the market averages by 6.11% over the next twelve months due to its growth.

D) Qualitative Analysis & Conclusions

We'll now supplement our quantitative analysis with a qualitative discussion of some of the major growth catalysts and risk factors that could impact the stock price in the near future. As we mentioned at the start of the article, Staples shot down the proposed merger between Staples and Office Depot on Tuesday, citing concerns over FTC approval. While this news sent the stock down 6% on Tuesday, Staples recovered half this fall over the next three days, showing that the market was still optimistic on a potential deal. Staples fears of FTC resistance stem from the previously failed merger with Office Depot in 1997, in which the FTC cited antitrust concerns regarding "office supply superstores". The FTC has relaxed this narrow definition now that Internet retailers like Amazon (AMZN) and Ebay (EBAY) have taken significant market share. This is shown by their recent acceptance of the Office Depot/Office Max merger in 2013. The FTC knows that office supply stores cannot impose monopoly-like pricing in the internet age, and thus is likely to approve the merger.

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Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in SPLS over the next 72 hours. The author wrote this article themselves, and it expresses their ...

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