Buy, Sell, or Hold: Staples

The world's largest office supplier, Staples (Nasdaq: SPLS  ) , has managed to earn a four-star rating from players in our online stock-picking community CAPS. Meanwhile, competitors Office Depot (NYSE: ODP  ) and OfficeMax (NYSE: OMX  ) have only garnered one measly star each. Obviously, the community sees something special in Staples, but should you? Let's take a look at the buy, sell, and hold arguments for this company.

Buy
Staples has a rocking dividend: At 3.3%, not only is it market-topping, but it's the only major office supply retailer to offer one. With a P/E of 9.6, it's less than OfficeMax and a bit higher than Office Depot, but it's also a much better run company. Not only that, looking at trailing-12-month performance, Staples had the best revenue growth of the three companies. It has the strongest position of the three and has the second highest online sales of any retailer -- impressive.

Sell
While 2011 was a good year for Staples, 2012 hasn't been so kind. The company's most recent quarterly filings revealed a 6% decline in profits from the same quarter last year. While this is much better than OfficeMax's painful 57% decline, it pales in comparison to Office Depot's $41 million in quarterly profits, up from last year's $15 million loss. (Although, there is a lot baked into that monumental increase, such as restructuring charges and a favorable pension settlement, which waters down the comparison.)

Another important thing to watch is Amazon.com (Nasdaq: AMZN  ) as it moves into the industry with its supply division. Staples may be No. 1 for now, but Amazon has a tendency to change all the rules and control pricing in any industry it enters. That could spell trouble for Staples.

Hold
Staples' most recent quarter saw flat same-store-sales growth, which is better than the other competitors in the space, but not exactly awe-inspiring. After a big drop over the past 12 months, though, it's looking cheap enough to hold off for a while, collect a fat dividend, and wait for OfficeMax and Office Depot to keel over and open up more potential market share for Staples. At this price, your chance for upside is better than a perpetuated slide.

While you shouldn't make investing decisions based on the previous fluctuations in a stock's price, it's obvious the industry isn't doing well. Investors hoping for a bounce-back should definitely keep an eye on what Staples and competitors do to stay relevant and increase shareholder value in the future.

Many investors are maintaining their faith in Staples, and I tend to agree with that position, but there's another great retailer out there that has earned a stellar five-star rating from the CAPS community. Some of our top analysts have even named it as "The Motley Fool's Top Stock for 2012," and put all the details you need to know in a convenient special free report. Click here to read about it now.

Fool contributor Amanda Buchanan holds no position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Staples. Motley Fool newsletter services have recommended buying shares of Staples. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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