Skip to comments.Shred Office Product Stocks
Posted on 10/15/2011 12:33:12 PM PDT by Kaslin
My daughter needed blank legal-sized paper for her homework, and I didn't have time to ponder, "Who do I know who works at an office building that can bring me a few sheets of paper?" So I went to OfficeMax, dreading spending $8.99 on a ream of paper that I'll never use again after the first two sheets.
I know there are some people in America who still have free cash flow, but most taxpayers have less income and assets than they did a decade ago, yet their expenses have increased due to inflation. I don't want to spend a dime that I'm not required to spend, and you probably don't want to either.
Reluctantly, I walked into OfficeMax, and then the lightbulb went on. I walked over to the copy machine area, and asked them if I could pay for two sheets of paper, as if I had made photocopies. The young man handed me five sheets of paper, for free, and sent me on my way. Ka-ching! That's how you win customers.
Let's look at OfficeMax's viability as a stock investment, and throw in other office product providers for comparison. My criteria always include a minimum stock price of $20, growing sales and earnings, and a good stock chart. Here's what I found:
OfficeMax (OMX, $4.98) -- With a share price of $4.98, and a recent string of net losses, I will look no further. I don't buy low-priced stocks. Period. But I'm quite happy to shop there!
Office Depot (ODP, $2.16) -- Another low-priced stock with an even longer string of net losses. How does a company which consistently loses this much money stay in business?
Are these two companies taking business advice from the green energy industry? Maybe they should try capitalism. I hear capitalists strive for profit and employ people.
Good Lord, are there any profitable companies in this industry?
Staples Inc. (SPLS, $14.87) -- Low share price, stagnant revenues, growing earnings per share. Financially healthy, but not good enough for investing.
Stamps.com Incorporated (STMP, $25.90) -- This one's a tiny little company with about $80 million in sales in recent years and only $5 million in profits. It's not that the company isn't doing well. It's just that the company's so tiny that if the Obama administration decided to turn its regulation-happy pitbulls in the directionn of the office products industry, a company this small won't be able to afford to pay the price. I realize that's a cynical way to look at business in America, but it's also reality. My approach to stock investing always includes ways to minimize risk, and one of the ways I do that is by investing in larger companies which are more likely to weather storms.
United Stationers Inc. (USTR, $31.29) -- Annual sales have been flat at just under $5 billion per year for the last three years. Net income has been growing, and earnings per share (EPS) are projected to grow 50% by FY2013. The dividend yield is 1.66%, and the stock price chart is decent.
Going back ten years, USTR stock falls during bad markets, recovers well, and then climbs in price. The price peaked around $34 in 2007, fell with the 2008 Financial Meltdown and fully recovered. USTR stock spent six months trading between $32.50 and $37 this year before falling with the market in August.
What happens next depends a lot on the stock market as a whole. A near-term price range of $29 - 31 with a subsequent move upwards looks likely, given a stock market which continues to stabilize or improves. Down markets are a tabula rasa for savvy investors seeking to buy low. Fiscally healthy companies like United Stationers warrant a closer look.
I hereby coin the phrase the Big Box Accordion Effect.
Big box discounters move in, expand, and squeeze (sorry) out the competition.
They then begin to fall down on the job and the accordion compresses. Prices rise or are rarely cut. Service declines since they have no competition. Once-reasonable return policies are pared down by management who see every customer with a return as a fraudster out to bilk the system rather than one actually dissatisfied with a purchase. Promotional mania takes hold and customers are hounded to buy high-margin warranties, unnecessary upgrades such as Monster Cables, etc.
What was once an enjoyable shopping experience in a store with plentiful, diverse stock at reasonable prices is now a get-in-and-get-out commando mission as customers try to avoid the worst excesses of ownership’s add-a-sale culture.
See also: Best Buy, Guitar Center, Golf Galaxy.
The free market, if we had one, would always fill a vacuum. Monopolies are not possible without government guarantee’s
Seems a mite odd that someone pi$$y about buying a ream of paper would be the same at buying a stock under $20.00/share. What's up with that?
Measuring the value of a compant by only share price is ignorant.
A company with a $5 share price but 100,000,000 shares is worth more than a company with a $100 share price but 100,000 shares.
Having some office supply ordering responsibilities, and having inherited our office’ use of Office Depot, I’d like to say, nothing much wrong with OD, but overall it’s much better to do business with pretty much any local independent office supply place. The stuff arrives same-day, and the list of stocked items doesn’t fluctuate nearly as much. Also, whomever one speaks with on the phone either knows about the product or can find out easily, which is not true of that online chat thingus that OD uses. And if they need more time, they will call you back. Again, not true of OD.
Anything paper-based has been tending to become lower-volume and more expensive, because of the electronics available today (mobile phones, pads, etc, as well as desktop computer software and websites have replaced planners and calendars for a lot of people). Electronic filing systems (in health care, for example, but also in public welfare agencies) have been reducing the bureaucratic triplicate and so on.
Another problem with OD (and probably these criticisms apply as well to Office Max, Staples, Quill, etc) is that they farm out, er, subcontract some specialty areas, so that “Robert” or “Susan” one chats with is probably not working in the US.
And that pisses me off.
Why would you expect to find any office supply company that is profitable in this economy? Why are you surprised by the result?
Sorry... once I read “I don’t invest in stocks with a share price of under $20” I knew I was reading the work of someone more knowledgeable and facile in writing than investment.
Staples is an awesome company, and a decent investment. The office supplies business is still not very consolidated, and it is a $300 billion dollar business. Staples is very well run, and its top line will grow with the economy, which is to say, not very dramatically, while they squeeze their suppliers and up the bottom line. It may not be the single best investment you could make, but it is worth considering.
The square foot of floor space in any of their stores today that is devoted to that segment is a big reduction from what it used to be, for all three of them.
I am not sure just where those sales went to (they all have a smaller segment of that stuff available), or how much those sales were to their bottom line. I just know that the quantity and variety of that segment is not what I remember it was in the past in their stores.
The change may also be a structural change, that has ballooned, in terms of "paper" itself, and its reduced footprint in todays office. Written memos were once demanded. Now the norm is inter-office written Emails. Fewer paper originals means fewer paper copies, fewer copiers and fewer faxes - totally much less "paper" products.
If may also be due to a recession-driven shift in demand as well.
Just some guesses.
I haven’t run the calcs, but I would assume that the Beta of an office-supplies operation would be strongly positive.
When there is less business, there is less demand for supplies because offices are being vacated.
It might be a good idea to pick up some of these during a recession if the beta is strongly positive.
The thing that has been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.
Remember (are you old enough ?)
Xerox was once king of the copier industry.
Kodak was once king of the camera industry.
And so on
Don't forget earnings, too. If the $5 company has a record of improving EPS over lots of quarters and the $100 company has declining EPS or operates at a loss, I know which I'd buy.
And Sears was the largest retailer in the US.
I would love to be able to do a statistical study on the use of paper over the last 30 years, controlling for the intervening recessions. IIRC use of paper had been exploding for the last decade or so.
Why? Cause we can make studies and print them out 1,000 times faster than before. I started in business doing studies using many sheets of 72 column paper. For the same study now, the data is downloaded, reformatted, calculations dropped in place and then printed for management. And 1,000 times faster is not an exaggeration.
I haven’t been to Guitar Center in a long time. There is one in Houston that is amazing. Musicians come in and play the instruments during Sunday afternoon and if you show an interest in an instument, you may get some incredibly good instruction from a muscician.
My wife was taught to play drums there over a period of a few weeks. She is really good, her hands do not appear move.
She is my “Drummer Chick”.
Not when they fall into 'penny stock' territory, which OD appears to be in, and which OM appears to be flirting with.
Unfortunately, I’m a guitarist and see it from the other side i.e. a lot of hackery going on at very loud volume. God bless the staff for their patience but not always for their knowledge, which is spotty at times and downright disingenuous at others as they attempt to push the promotion of the day.
It’s another industry where self-education and mail order have become necessary.
I agree with you.
Not only do the smaller dealers have more knowledge about the product, but most people don't realize that they'll generally get a better price than the Guitar Center price. Plus, the guitar's been set up, not just pulled out of a box and hung on a wall.
I've been collecting for 40 years, but if I have a guitar from Guitar Center, it's only because the guitar was a special edition available only through Guitar Center.