When is the last time you walked into Staples (SPLS) and said to yourself, man this is a great store? One of the most tangible ways to find investment ideas, or to make conscious decisions not to invest, is to use the Random Walk Theory, popularized well before I came into this industry in the mid 1990s. I am going to discuss that here, but also what I consider a more important metric as well.
Random Walk Theory suggests that you consider investing in companies that make the things you use, or own the stores you frequent. Digging a little deeper, it also implies that you like the items you purchase, or the stores you buy them in, which is the part that matters to this Staples discussion.
Staples might have the most drab and boring stores I have ever seen, and I only visit them when I am forced. The items they sell can be bought in many other places, and many of those stores look better. Best Buy (BBY), for example, has good looking stores, and I would much rather walk into a Best Buy than a Staples. It is just a better experience.
Starbucks (SBUX) made Wall Street recognize the importance of this with their ambiance-driven stores, but that is a different animal altogether. I am not expecting Staples to provide the same feel as a Starbucks, but given my experiences in Staples' Stores, at least make the stores welcoming for buyers.
That is where Staples falls short. Their stores do not welcome intelligent and affluent buyers, yet their products target small businesses, who are often run by people who have a good head on their shoulders. In my opinion, the reason Staples is struggling is in part due to management's inability to reach their customer, and although it starts with the storefront, it extends far beyond that. If you want to reach the small business owner, offer something that brings them into the store, differentiate yourself, and make a difference to their business in a way that your competition cannot. That, coupled with an attractive storefront, would actually turn Staples around, but I see none of that on the horizon.
Instead, the stock is starting to break critical support levels as those are defined in our real time trading report for SPLS, and that is a metric that I consider much more important than Random Walk. When longer term support levels break it is a sign to sell, some consider it a sign to short as well, but it definitely is not a sign to buy. SPLS is not a buy unless it ether reverses higher above recently broken support, or collapses and defines a new longer term support level. If it remains under longer term support, avoid SPLS.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Thomas Kee for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.