Office Depot: Comeback Kid or Total Flop?

Depending on your outlook, Office Depot ODP is either the next big comeback story, or a wonderful way to gamble away what's left of your 401k. Office Depot has been on a downward slide for several years now. Where the stock traded around $40 in early 2007, it is now worth maybe 10% of that. The company was hit with a $1 million fine, and two top executives paid $50,000 each, after the Securities and Exchange Commission found they tried to manage earnings expectations by feeding insider-style information to analysts — information that was not, at the time, available to other investors. "Office Depot executives selectively shared information with analysts and the company's largest shareholders in order to manage earnings expectations," said Robert Khuzami, Director of the SEC's Division of Enforcement. "Talking Wall Street down from its earnings projections whether done expressly or through signals is prohibited," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "Regulation FD is designed to level the playing field so that all investors receive the information at the same time." On top of the accounting scandal, the company has been plagued with either bad luck, bad management, or both. Either way, it ended up with bad performance, as earnings cratered and investors fled for safer stocks. Will a management shake-up serve to re-energize Office Depot? Maybe. Monday, the board of Office Depot appointed interim Chairman and CEO Neil Austrian to the posts on a permanent basis, seven months after the last CEO left amid accounting scandal talks. Now that Austrian is the permanent leader, and not the interim placeholder, might Office Depot finally make the changes necessary to grow and profit? Take a look at some of the numbers. ODP has a Debt/Free Cash Flow Ratio of 19.59. Anything above 3 suggests the company cannot pay off its debt within three years. ODP is well past that marker. Many of the metrics suggest struggles for the next few years, including potential losses. However, at $4.20 a share or so, the stock might offer a low-cost buying opportunity for those who can afford a higher level of risk.