Office Depot Inc (NYSE:ODP) keeps on fighting. Two years ago, the Federal Trade Commission appeared to deal the company a knockout blow. The country’s largest office supply chains, Staples and Office Depot, had intended to merge. For whatever bizarre reason, the FTC blocked the deal as being uncompetitive. ODP stock plunged following the decision.

Staples had a much stronger competitive position at the time. That was, in large part, due to Staples gigantic e-commerce presence, something that Office Depot has been much slower to pick up. Staples was previously publicly-traded as well. However, private equity firm Sycamore Partners acquired Staples last year, leaving Office Depot alone on a publicly-traded stock exchange.

Office Depot Was Hardly a Monopoly

The FTC’s decision was an affront to capitalism and deeply injurious to ODP stock. ODP stock was trading above $7 in 2016 heading into the ruling. It immediately crumbled to $4 following the government blocking the merger.

What did the government prevent in stopping the two from partnering up? Staples appears to be a more viable business. It has operations in 26 countries and a strong e-commerce offering, helping diversify away from fading U.S. stores. Still, neither Staples nor Office Depot seemed particularly strong in the wake of modernization.

For one, paper and office supplies is a declining industry. With so much going digital, there’s simply much less business and consumer demand for the bread-and-butter products that Staples and Office Depot sell. On top of that, Amazon.com, Inc. (NASDAQ:AMZN) and other online sites can sell these sorts of goods cheaply. There’s little reason to need to go to a store to buy paper, ink cartridges or pens. Most people don’t need to see before they buy that sort of product.

Office Depot Has Long Been In Decline

There was good reason that Staples and Office Depot wanted to merge. Their management teams could see the writing on the wall. In a world dominated by e-commerce for commodity goods such as office supplies, there was no need for a huge physical store network. In particular, there was no reason to have Office Depot and Staples competing for sales. By merging the two, the combined entity would have had a better chance of retaining a viable bricks-and-mortar business.

Instead, Office Depot is forced to go it alone while Staples is sheltered from stock market volatility, thanks to its private equity holders. How is Office Depot doing on its own? Not that great, to be honest.

Fifteen years ago, Office Depot was doing $12.5 billion per year in revenues. This figure rose to as high as $15.5 billion in 2007. It would get no higher though. The recession took its toll, with sales dropping back to $12.1 billion in 2009. From there until 2014, sales stabilized around the $12-billion mark. Now, however, Office Depot is slumping again — sales are down the last three years in a row, and threaten to fall below the $10-billion level for the first time in more than 15 years. The question, of course, is if this is how business is going during an economic expansion, what happens during the next recession?

Is ODP Stock Cheap Enough?

The bullish counterargument is a simple one. Sure, it’s not a good business, but Office Depot stock is priced appropriately. Staples was willing to pay more than $7 per share for Office Depot. Even given the further erosion since then, surely ODP is still worth more than $2.50 just two years later, right?

Unfortunately, the answer isn’t so clear cut. For one thing, much of that $7 value was due to the merger premium. Now that Staples is privately-held, and Office Depot’s position has deteriorated, it’s hard to see another merger offer coming, even if the FTC would now approve it.

And on an earnings basis, the picture for ODP stock isn’t so clear. To be certain, the stock is selling at less than 8x forward earnings. However,  it is closer to 13x trailing earnings (adjusted for one-off events) and it’s hard to see why earnings are set to jump so much this year. The business has run with stable to declining revenues and profit margins for years now, so a sudden jump of more than 50% in earnings seems optimistic. In any case, analysts see flattish earnings in 2019 and a slight decline in 2020, so don’t expect this year’s big surge in profits to continue.

On the other hand, bulls can point to ODP stock trading at tangible book value. That means that, in theory, if Office Depot were to liquidate, each share would be fully backed by the company’s stores, inventory, cash and other assets. In general, that greatly minimizes downside.

ODP Stock Verdict

Office Depot’s management is doing a fine job, given the adverse circumstances. The FTC’s decision was terrible, and ODP stock got crushed as a result. But the company has stemmed the bleeding, is strongly profitable despite the circumstances, and has a solid balance sheet to back up the share price.

The company is further making moves, both organically and via acquisitions, to diversify into recurring revenue streams, such as IT solutions, and away from just physical stores. And the 4% dividend yield offers a nice incentive to shareholders, along with showing management’s confidence in their balance sheet.

I don’t see ODP stock as a compelling play at today’s price. This is a shrinking business, after all, and a low price-to-earnings ratio is appropriate. Don’t expect a gigantic turnaround a la Best Buy Co Inc (NYSE:BBY) for this embattled Amazon-threatened retailer. Short sellers aren’t heavily involved either — short interest is under 5% of the float. So a squeeze isn’t likely. Still, ODP stock could get back to $3 in coming months, especially with another good quarterly report.

At the time of this writing, the author held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.