Dear Mr. Berko:

In mid-2000 I took a fling and bought 1,000 shares of Office Depot at $7.25 per share because my company purchases a significant amount of products from them at excellent prices and their business service is superb. Wish I could say the same about their in-store retail service, which sucks. Well, as you can see, I have a rather huge profit, and I need your advice. Should I take my profits or continue to hold my shares? What’s the prognosis for the next few years?

B.W., Boca Raton, Fla.   Dear B.W.:

Yep, their business service is the best. But as a retail consumer, I would drive 20 minutes out of my way to find another store, because Office Depot’s “retail service” is a quintessential example of an oxymoron.

Office Depot Inc. (ODP-$33.62), home ported a few miles north of my office in tony Delray Beach, Fla., retails and wholesales any item you need to run an office – except live people, and they’ve probably considered doing that, too. This $15.1 billion (2006) revenue company has 1,175 retail stores in North America, plus 351 locations in other parts of the Free World.

This office supplier sells everything from the simplest dingus, doohickey and doodad to sophisticated digital office technology used by the Mafia, politicians, health insurance companies, derivatives traders and big oil companies.

Meanwhile, Chief Executive Officer Steve Odland is ramping up ODP’s private-label products business from its current 20 percent of revenues to a goal of 50 percent of revenues in the next four years. His new restructuring program (begun in late 2005) is boosting operating margins, and management is regaining traction on its previously declining market share in contract stationer revenues. A much-needed store-remodeling program has begun accelerating. Its business solutions division, which has not fared well in the past few years, was also impressively expanded this year. Meanwhile, the company intends to buy back 10 percent of its shares by 2011.

Management has done a yeoman’s job of captaining the company since 2000, when the stock traded under $6 a share. The U.S. office supply market has annual growth rate forecasts of 3 percent over the coming five years. However, ODP’s revenues have grown 50 percent from 2000 to an expected $16.1 billion this year, and earnings are expected to triple to $640 million or $2.31 a share.

According to Value Line, Standard & Poor’s, Deutsche Securities and Credit Suisse, ODP’s revenues and earnings will continue their strong growth, and each has issued a buy recommendation on the stock. Value Line believes ODP may declare a first-ever dividend in a year or two, and Bear Stearns thinks the stock could trade in the mid-$60s during the next four years. They might be right as a button.

The consensus expects earnings to easily reach $3.70 per share by 2011 with revenues coming in at $20 billion and net profit margins of 7.6 percent. So with an average price-earnings ratio of 17, ODP shares could rightly trade between $63 and $68 a share.

You’ve got a lovely profit in those 1,000 shares, and one would have to be a stumbling tosspot to ignore such good fortune. So sell 240 shares and recover your initial $7,000 investment after taxes and hold on to the remaining 760 shares. I suspect that ODP could move back to the $60s and split 3-for-2 as it did in early 1999 before the Dow began to crash. And please accept my congratulations on a very timely and wise purchase.

Please address your financial questions  to Malcolm Berko, P.O. Box  1416, Boca Raton, Fla. 33429 or  e-mail him at malber@adelphia.net.  © Copley News Service