Why Staples, Inc. Shares Will Keep Slumping

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Staples  slipped about 2% today after Goldman Sachs downgraded the office products retailer from neutral to sell.

So what: Along with the downgrade, analyst Matthew Fassler lowered his price target to $11 (from $11.50), representing about 6% worth of downside to Friday's close. So while contrarian traders might be attracted to Staples' sharp pullback over the past year, Fassler's call could reflect a sense on Wall Street that its margin expansion potential is just too limited to trigger a significant rebound.

Now what: According to Goldman, Staples' risk/reward trade-off is rather unattractive at this point. "Staples is coping with the same sector dynamics, but coming from a higher and tougher, starting point for margins," said Fassler. "We model margins stabilizing in 2015-2016 after a tough 2014, but see structural challenges making margin recovery difficult." Of course, with Staples shares now off more than 30% from their 52-week highs and boasting a 4%-plus dividend yield, those challenges might already be baked into the valuation. 

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The article Why Staples, Inc. Shares Will Keep Slumping originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool owns shares of Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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