Office Depot Stock Has Shed 42% of Its Value in 2018



ODP stock continues to fall

Office Depot (ODP), one of the last surviving office supply retailers, has been seeing a downtrend in its stock for some time. The stock has fallen 41.8% on a YTD (year-to-date) basis as of April 10, 2018. In comparison, its peers Best Buy (BBY) and Target (TGT) have risen 4.7% and 11.6%, respectively, in the same period. Costco (COST) has fallen 1.4% YTD.

Since releasing its fiscal 4Q17 earnings report on February 28, 2018, Office Depot stock has fallen 29% as of April 10, 2018. For fiscal 4Q17, the company reported sales of $2.6 billion, which missed analysts’ estimate. But adjusted EPS (earnings per share) of $0.08 came in above analysts’ projection of $0.07. However, on a year-over-year basis, the metrics have fallen 5.3% and 27.3%, respectively.

After its dismal fiscal 4Q17 results, Office Depot’s 12-month forward PE (price-to-earnings) ratio fell 11% to 6.43x. Currently, Best Buy, Costco, and Target are trading at 12-month forward PE ratios of 14.2x, 24.8x, and 13.7x, respectively, as of April 10, 2018.

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What ails the company?

Decelerating sales growth and a challenging retail backdrop due to the growth of online retailers are making things tough for Office Depot. More importantly, Office Depot has now embarked on becoming a business services-focused company since the shift to digital has rendered most paper-based office supplies unnecessary. The company has acquired CompuCom, launched an in-house service platform called BizBox, and is concentrating on subscription-based services. The company is also selling its non-core international operations.

These efforts are likely to boost its long-term growth. However, its investments may weigh down its profits and bottom line in the near term. In fiscal 2018, its sales are likely to be impacted by store closures and lower volumes as well as a new revenue recognition practice.


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