Trade-Ideas: Staples (SPLS) Is Today's

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Staples ( SPLS) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Staples as such a stock due to the following factors:

  • SPLS has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $133.3 million.
  • SPLS has traded 10.9 million shares today.
  • SPLS traded in a range 250.9% of the normal price range with a price range of $0.65.
  • SPLS traded above its daily resistance level (quality: 27 days, meaning that the stock is crossing a resistance level set by the last 27 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on SPLS:

Staples, Inc., together with its subsidiaries, operates office products superstores. It operates in three segments: North American Stores & Online, North American Commercial, and International Operations. The stock currently has a dividend yield of 4.2%. SPLS has a PE ratio of 10.7. Currently there are no analysts that rate Staples a buy, 1 analyst rates it a sell, and 13 rate it a hold.

The average volume for Staples has been 11.3 million shares per day over the past 30 days. Staples has a market cap of $7.4 billion and is part of the services sector and specialty retail industry. The stock has a beta of 1.77 and a short float of 14.2% with 8.34 days to cover. Shares are down 28.1% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Staples as a hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Specialty Retail industry. The net income increased by 172.1% when compared to the same quarter one year prior, rising from $78.06 million to $212.38 million.
  • SPLS's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that SPLS's debt-to-equity ratio is low, the quick ratio, which is currently 0.69, displays a potential problem in covering short-term cash needs.
  • The gross profit margin for STAPLES INC is currently lower than what is desirable, coming in at 27.39%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.61% trails that of the industry average.
  • Net operating cash flow has decreased to $233.15 million or 28.13% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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