Is it Time to Stay Away from Office Depot’s Stock?

With shares of Office Depot, Inc. (NYSE:ODP) trading around $3.30, is ODP an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalysts for the Stock’s Movement

Shares of Office Depot have come up over 76 percent in the last three months. The big news on the street is that activist hedge fund Starboard Value LP has been pushing for significant changes at the company, and they may or may not be welcome by the other shareholders.

As of October 12, Starboard owned a 14.8 percent stake in the company, and Office Depot has adopted a poison pill as a defense against any aggressive take over that triggers at 15 percent ownership. It’s unclear if the poison pill will cause Starboard to unwind its position or if they will stick with the cause — but a quick gain could look pretty attractive versus fighting a hostile board.

E = Equity to Debt Ratio is Close to Zero

With a debt-to-equity ratio of 0.63, Office Depot falls in between its competitors. OfficeMax Incorporated (NYSE:OMX) has the highest debt-to-equity ratio of the major office suppliers at 0.89, while Staples, Inc. (NASDAQ:SPLS) has the lowest, at 0.27.

It’s also important to consider total cash on hand as well as total debt, which for Office Depot is $619.53 million in cash and $671.11 million in debt. OfficeMax has just $506.02 million in cash with a relatively high debt of $971.39 million, while Staples has the largest war chest at $1.02 billion and debt of $1.66 billion.