Can Staples Recover After Recent News?

With shares of Staples (NASDAQ:SPLS) trading around $14, is Staples an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Staples is an office products company that operates in three business segments: North American Stores & Online, North American Commercial, and International Operations. The company serves businesses of all sizes and consumers around the world. Business products and services are essential to consumers and producers for day to day operations. So long as companies and consumers continue to transact and interact, business opportunities will arise. Look for companies like Staples to see rising profits as consumers and businesses continue to grow across the globe.

Staples delivered a earnings and revenues that were short of Wall Street’s expectations. The revenue miss is a not a good sign to shareholders who seek high growth out of the company.

T = Technicals on the Stock Chart are Mixed

Staples stock was moving higher in the current year. However, the stock has been heavily sold after a negative earnings release. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Staples is trading between its key averages which signal neutral price action in the near-term.

SPLS

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Staples options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Staples Options

32.00%

66%

63%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

September Options

Steep

Average

October Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Staples’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Staples look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-11.11%

-3.70%

-71.05%

-289.36%

Revenue Growth (Y-O-Y)

-3.34%

-3.50%

3.04%

-1.97%

Earnings Reaction

-15.97%*

2.84%

-7.14%

2.57%

Staples has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Staples’s recent earnings announcements.

*As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Staples stock done relative to its peers, Office Depot (NYSE:ODP), OfficeMax (NYSE:OMX), United Stationers (NASDAQ:USTR), and sector?

Staples

Office Depot

OfficeMax

United Stationers

Sector

Year-to-Date Return

27.63%

22.26%

5.53%

34.66%

18.43%

Staples has been a relative performance leader, year-to-date.

Conclusion

Staples provides essential business and consumer products to people operating in a large number of countries and industries. The company recently reported earnings that have not pleased investors. The stock is currently selling-off after its recent news. Over the last four quarters, earnings and revenues have been decreasing which has left investors in the company disappointed. Relative to its peers and sector, Staples has been a year-to-date performance leader. WAIT AND SEE what Staples does this coming quarter.

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