Ray Dalio (Trades, Portfolio), the founder of Bridgewater Associates, increased his stake in Staples (SPLS, Financial) by 409.68% during the second quarter. He bought 2,120,111 shares of the company at an average price of $9.55 per share. Since the addition, Staples' market price has dipped an estimated 13%.
Staples was founded on May 1, 1986 in Brighton, Massachusetts. It is a large office supply chain store, with 1302 stores in the United States and 305 stores in Canada. The company also has 278 retail retail stores in Europe, with its largest concentration of stores in the United Kingdom, Germany, the Netherlands and Portugal. Staples' company vision is “We help businesses succeed.” As of Jan. 30, Staples employed 42,554 full-time employees and 32,817 part-time employees.
Staples has a market cap of $5.41 billion, an enterprise value of $7.98 billion, a P/B ratio of 1.17, a current ratio of 1.59 and a quick ratio of 0.97.
According to GuruFocus, Staples has a 6 of 10 financial strength rating with a cash to debt ratio of 0.63 and an equity to asset ratio of 0.48. Its Piotroski F-Score of 7 indicates a very healthy business situation and its Altman Z-Score indicates that the company is in the safe zone and is not in danger of filing for bankruptcy within the next two years. The company also has a 5 of 10 profitability and growth rating with an operating margin of -1.28%, a net-margin of -2.13%, a ROE of -8.49%, a ROA of -4.15% and a ROC (Joel Greenblatt (Trades, Portfolio)) of -10.49%, which ranks the company beneath 86% of its competition in the global specialty retail industry.
Dalio likely increased his stake in Staples for the following reasons:
- The company is established with more than 30 years of operating experience.
- The company’s market price was at a 10-year low during the second quarter.
- The company is paying a dividend yield of 5.76%, which ranks above 89% of the 906 companies in the global specialty retail industry.
Staples has 2 severe warning signs, according to GuruFocus, that investors should pay attention to:
- Staples' revenue has been in decline over the previous 3 years at an average rate of -3.70%.
- Staples' operating margin has been in 5-year decline. The average rate of decline per year is -19.3%.
Staples is also facing a tremendous amount of competition from online retailers such as Amazon.com (AMZN, Financial). It is also facing competition from mass merchants such as Wal-Mart (WMT, Financial), Target (TGT, Financial), Tesco (TESO, Financial) and Costco (COST, Financial), as well as from computer and electronics retail stores such as Best Buy (BBY, Financial), and specialty technology stores such as Apple (AAPL, Financial), copy and print businesses such as FedEx Office (FDX, Financial), and a wide range of other drug stores, retailers and grocery stores.
In 2014 and 2015 combined, Staples closed 242 stores and they expect to close an additional 50 stores in 2016, according to the company’s most recent 10-K filing. The fact that Staples is closing stores and not expanding its operations is a negative sign that investors should pay attention to.
Below is a Peter Lynch Chart that shows that Staples is trading slightly below its intrinsic value.
It is also noteworthy that gurus Joel Greenblatt (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), David Dreman (Trades, Portfolio) and Donald Yacktman (Trades, Portfolio) all added to their stake in Staples during the second quarter. In contrast, Steven Cohen (Trades, Portfolio), Eric Mindich (Trades, Portfolio), Richard Snow (Trades, Portfolio) and George Soros (Trades, Portfolio) all sold out their remaining shares. T Rowe Price Equity Income Fund (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Richard Pzena (Trades, Portfolio) and Jim Simons (Trades, Portfolio) all reduced their positions in Staples during the second quarter.
Ray Dalio (Trades, Portfolio) founded Bridgewater Associates in 1975 in his two-bedroom apartment in New York City. At the same time, he was starting a family. Today, Bridgewater Associates is the world's largest hedge fund. It manages $154 billion, according to Forbes.com.
Disclosure:Â Author does not own any shares of any stocks mentioned in this article.
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