Major indices have lost their momentum lately owing to a plethora of woes such as U.S.-China trade conflict, tightening of monetary policy, partial government shutdown and slowing global economy. In such a scenario, you may be scrambling for stocks on the Wall Street that look promising as you head toward 2019. We are presenting here one such stock — Office Depot, Inc. (ODP - Free Report) — that looks well poised on growth track, courtesy of strategic endeavors, and looks compelling from valuation perspective.
The company is trying all means to give itself a complete makeover in an environment where demand for office products (paper-based) has shrunk due to technological advancements. Surely, the company is focusing on business operating model, viable projects and cost structure.
ODP Treading Growth Path
Office Depot is concentrating on e-commerce platforms and providing innovative products and services. The company by increasing penetration into adjacent categories and enhancing share of wallet with existing customers, intends to boost sales in the contract channel. The company is also engaging in the acquisition of small, independent regional office product dealers in different geographical locations such as Hawaii, Wisconsin, Oklahoma and New Mexico to enhance its footprint.
Management is making incremental investments to catapult it into a product and services-driven enterprise. Service revenue represents approximately 15% of the total sales and is likely to reach about 20% of total sales in the next two years.
To widen its domain of offerings, Office Depot acquired CompuCom Systems that is helping it to acclimatize to the fast-changing retail landscape along with providing enterprise-level tech services and products to customers. The company also signed a channel partner agreement with MicroCorp, a premier value-added distributor of telecom and cloud solutions. The company is also a certified installation partner for Google and Nest smart home devices.
The company is also incorporating Tech-Zone services desk across its stores. It also launched a subscription-based business services platform, BizBox, to assist start-ups and small businesses on host of things such as website designing, financing and accounting service, HR/payroll support and others. We believe that improvement in Business Solutions and CompuCom divisions is likely to benefit the company going forward.
Office Depot is leaving no stone unturned to develop into an omni-channel business services platform, offering end-to-end solutions to enterprise customers and small to medium-sized businesses.
Valuation Looks Attractive
We note that shares of Office Depot have fallen 13.4% in the past six months compared with the industry’s decline of 10.3%. But in spite of this you can’t ignore the stock’s aforementioned fundamentals that is well reflected from Zacks Rank #2 (Buy) and attractive valuation. Since the long term bodes, it will be wise to invest in the stock. Since, by purchasing the stock right after a dip, you are essentially buying shares at a discount. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A brief glance at some valuation metrics seems to indicate that Office Depot has enough room to run on the bourses. Further, a Value Score of A also indicates the same.
Office Depot with a price to sales ratio of 0.1 compared with that of industry’s 0.9 indicates that the stock has enough upside potential. The stock also looks attractive with respect to a forward price-to-earnings (P/E) multiple of 7.0x versus industry’s 12.4x. A more-or-less similar picture emerges when comparing EV/EBITDA ratios. Office Depot holds the edge here with an EV/EBITDA ratio of 3.0 lower than 11.7 for the industry.
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DICK'S Sporting Goods, Inc. (DKS - Free Report) delivered average positive earnings surprise of 25.5% in the trailing four quarters. It carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Five Below, Inc. (FIVE - Free Report) delivered average positive earnings surprise of 9.1% in the trailing four quarters. It has a long-term earnings growth rate of 30% and a Zacks Rank #2.
The Michaels Companies, Inc. (MIK - Free Report) delivered average positive earnings surprise of 6.4% in the trailing four quarters. It has a long-term earnings growth rate of 7.6% and a Zacks Rank #2.
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