Should you sell Office Depot (NYSE: ODP) today?

The decision to sell a stock you've researched and followed for months or years is never easy. If you fall in love with your stock holdings, you risk becoming vulnerable to confirmation bias -- listening only to information that supports your theories, and rejecting any contradictions.

In 2004, longtime Fool Bill Mann called confirmation bias one of the most dangerous components of investing. This warning has helped my own personal investing throughout the Great Recession. Now, I want to help you identify potential sell signs on popular stocks within our 4-million-strong community.

Today I'm laser-focused on Office Depot, ready to evaluate its price, valuation, margins, and liquidity. Let's get started!

Don't sell on price
Over the past 12 months, Office Depot is down 49.8% versus an S&P 500 return of 13.7%. Investors in Office Depot are no doubt disappointed with their returns, but is now the time to cut and run? Not necessarily. Short-term underperformance alone is not a sell sign. The market may be missing the critical element of your Office Depot investing thesis. For historical context, let's compare Office Depot's recent price to its 52-week and five-year highs. I've also included a few other businesses in the same or related industries:


Recent Price

52-Week High

5-Year High

Office Depot $4.15 $9.19 $46.50
Best Buy (NYSE: BBY) $29.46 $48.83 $58.60
Staples (Nasdaq: SPLS) $20.02 $25.00 $28.00
Bed Bath & Beyond (Nasdaq: BBBY) $54.94 $57.88 $57.88

Source: Capital IQ, a division of Standard & Poor's.

As you can see, Office Depot is down from its 52-week high. If you bought near the peak, now's the time to think back to why you bought it in the first place. If your reasons still hold true, you shouldn't sell based on this information alone.

Potential sell signs
First, let's look at the gross margins trend, which represents the amount of profit a company makes for each $1 in sales, after deducting all costs directly related to that sale. A deteriorating gross margin over time can indicate that competition has forced the company to lower prices, that it can't control costs, or that its whole industry's facing tough times. Here is Office Depot's gross margin over the past five years:

Source: Capital IQ, a division of Standard & Poor's.

Office Depot has been able to rebound its gross margin, which tends to dictate a company's overall profitability. This is solid news; however, Office Depot investors need to keep an eye on this over the coming quarters. If margins begin to dip again, you'll want to know why.

Next, let's explore what other investors think about Office Depot. We love the contrarian view here at, but we don't mind cheating off of our neighbors every once in a while. For this, we'll examine two metrics: Motley Fool CAPS ratings and short interest. The former tells us how's 170,000-strong community of individual analysts rate the stock. The latter shows what proportion of investors are betting that the stock will fall. I'm including other peer companies once again for context.


CAPS Rating (out of 5)

Short Interest (% of Float)

Office Depot ** 7.7
Best Buy ** 8.2
Staples ** 2.1
Bed Bath & Beyond ** 2.4

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

The Fool community is rather bearish on Office Depot. We typically like to see our stocks rated at four or five stars. Anything below that is a less-than-bullish indicator. I highly recommend you visit Office Depot's stock pitch page to see the verbatim reasons behind the ratings.

Here, short interest is at a high 7.7%. This typically indicates that large institutional investors are betting against the stock.

Now, let's study Office Depot's debt situation, with a little help from the debt-to-equity ratio. This metric tells us how much debt the company's taken on, relative to its overall capital structure.

Source: Capital IQ, a division of Standard & Poor's.

Office Depot's total debt is around its five-year average. When we take into account decreasing total equity over the same time period, this has caused debt-to-equity to increase, as seen in the above chart. Based on the trend alone, that's a bad sign. I consider a debt-to-equity ratio below 50% to be healthy, though it varies by industry.  Office Depot is currently above this level, at 69.6%.

The last metric I like to look at is the current ratio, which lets investors judge a company's short-term liquidity. If Office Depot had to convert its current assets to cash in one year, how many times over could the company cover its current liabilities? As of the last filing, Office Depot has a current ratio of 1.29. Office Depot could cover its current liabilities, but it's still below a healthy level of 1.5.

Finally, it's highly beneficial to determine whether Office Depot belongs in your portfolio -- and to know how many similar businesses already occupy your stable of investments. If you haven't already, be sure to put your tickers into's free portfolio tracker, My Watchlist. You can get started right away by clicking here to add Office Depot.

The final recap

Office Depot has failed four of the quick tests that would make it a sell. Does it mean you should sell your Office Depot shares today solely because of this? Not necessarily, but keep your eye on these trends over the coming quarters.

Remember to add Office Depot to My Watchlist  to help you keep track of all our coverage of the company on

If you haven't had a chance yet, be sure to read this article detailing how I missed out on over $100,000 in gains through wrong-headed selling.

Jeremy Phillips does not own shares of the companies mentioned. Office Depot is a Motley Fool Big Short short-sale pick. Best Buy is a Motley Fool Inside Value selection. Bed Bath & Beyond, Best Buy, and Staples are Motley Fool Stock Advisor picks. Alpha Newsletter Account, LLC has opened a short position on Office Depot. The Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.