I really just don't get it. I'm a small-cap guy. I like stocks that almost nobody ever hears about until they're acquired by some larger company, and that's where I've made the bulk of my investing money over the years. And yet, I keep finding interesting values among some of the really big companies. Heck, I've found enough to start doing a Tour of the Dow series with my Foolish buddy Nathan Parmelee. Today's candidate? Office-supply king Staples (NASDAQ:SPLS).
It seems that Staples delivered a solid, businesslike result for the third quarter. Sales were up about 11%, net income was up 14%, and while free cash flow is trending lower than last year, it's still solidly in the black. Lesser metrics were also positive, as North American same-store sales were up 3% and both the gross margin and operating margin improved slightly.
Overseas results weren't so good, but I'm not too concerned yet. Sales (excluding acquisitions) were down 2%, but international sales make up only about 12% of the company's total. What's more, I believe Staples is still expanding overseas, and I don't think sluggish sales growth today means that its plans have gone awry or should be curtailed. Though it will take time for markets like China to become major contributors to the bottom line, they could still play a significant role in future growth.
Staples has no shortage of competitors, including Office Depot (NYSE:ODP), OfficeMax (NYSE:OMX), Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST). Still, the company generates very good returns on assets and capital. With more potential in further supply-chain improvements, Staples should be able to continue to grow earnings faster than sales.
As I said, I'm not normally a big fan of large-cap stocks, but my affection for value outweighs my biases regarding market cap. Staples looks pretty interesting at its current share price, but of course, every Fool needs to do his or her own due diligence.
For more retail Foolishness:
Costco is a Motley Fool Stock Advisor recommendation.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
