Office supply retailer OfficeMax
Management's turnaround plan appears to be bearing fruit (you can check out third-quarter results in our Fool by Numbers), yet already the stock has nearly doubled for the year. Would it be Foolish to hop on board at this point?
Perhaps I'm a bit leery of struggling retailers after being stood up by Pier 1 Imports
Meanwhile, OfficeMax needs to continue cutting costs in a big way. Selling, general, and administrative (SG&A) expenses accounted for 13% of sales, while Staples only spends 4% of sales on the same category. If OfficeMax can't become the lean, mean machine that Staples is, it doesn't stand much of a chance at competing in the long run.
If analysts' estimates of $0.39 come through for the fourth quarter, OfficeMax will earn $2.01 a share for current year. At its current level, the stock is trading for 23.8 times 2006 earnings. Despite its recent struggles, I would likely prefer shares of Staples at 21.5 times earnings because of its excellent long-term record. Yet the value investor in me questions if even that multiple could be a little rich, given the current risks.
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Fool contributor Jason Ramage holds no financial interest in the companies mentioned here.