I can’t tell you how many times a client walks out of my office with my last pen, drains my last bit of ink asking for an extra report, or I find myself one or two envelopes short for a client mailing. I’m left jumping into my car for a quick trip to one of this global retailer’s 2,295 locations and contributing to its $25 billion in annual revenue. That’s practically double the number of locations from its closest competitor and nearly three times the annual revenue.

In addition to this company playing a crucial role in the look, feel and bottom line of millions of small to mid-size businesses, its diverse product base is also found in backpacks, desks and even dorm rooms of an estimated 77 million students.

Back-to-school shopping is the second biggest consumer spending event behind the winter holidays and should be a boon for retailers this summer. Combined with the impact small businesses will play in an economic recovery, I think I’ve found the perfect stock to capitalize on both of these trends.

The specialty superstore I’m referring to is Staples (Nasdaq: SPLS). Currently, this company has been trading at a 25% discount to my one year target estimate of $15.50. That’s a hefty markdown when you factor in its consistent dividend of nearly 3.5% that’s supported by a payout ratio of only 29% and more than a $1 billion in free cash flow.

The stock currently offers investors a very inexpensive entry point, trading at only seven times future earnings. Furthermore, with EPS growth estimates for both 2013 and 2014 north of 10% each year, and recent price action breaking out above its 50-day moving average, technical and fundamental indicators are making this sleeping giant an ideal investment for investors seeking long-term capital appreciation with steady income.

 As you might expect, the slowing economic recovery has dampened sales thanks in part to tighter credit, stagnate unemployment, a general slowdown in spending by both small business and consumers, and of course, issues with international markets. While Staples might be down about 10% year-to-date, it’s anything but out… In fact, the stock is on clearance when you combine its upside potential with its 5-year dividend growth rate of over 8% and near term financial strength (current ratio of 1.6), to name a few.

What make Staples the best stock for small business growth? Constant new business formation along with legislative efforts designed to lessen entrepreneurial/regulatory burdens. Remarkably, new business creation remains very constant over time because external factors such as recessions and tax changes have very little impact on an entrepreneur’s decisions to start a new business. Moreover, with small businesses employing half of all private sector employees, paying 44% of total U.S. private payrolls, and having generated 65% of net new jobs over the past 17 years, office supplies and related services should remain in demand no matter the political and economic climate.

On the legislative front, the JOBS Act as well as proposals including the Red Tape Reduction and Small Business Job Creation Act suggests small business formation is positioned to grow. What’s more, with an ever-growing supply of tools and resources for new business owners, one might expect for new businesses success rates to increase, and in doing so, consume more paper, ink, business cards and office furniture for a longer periods of time.   

That being said, headwinds including international weakness (Europe) remain. Reduced sales and currency issues abroad contributed to a less than stellar first-quarter earnings report, but management has stuck to its full 2012 forecast which calls for low single-digit revenue growth and high single-digit diluted EPS growth — factors that will once again be addressed when the company releases second-quarter earnings on August 15.

Of important note is the fact that Staples’ sales outside North America represent just 22% of its total revenue, creating an important margin of safety in case of further deterioration. While opportunities persist for Staples to grow internationally, prospects for home-grown growth are already helping the bottom line. Staples’ introduction of break room supplies, the continued expansion of their inexpensive yet high margin private-label products (grown to 24% of sales in 2010 from 10% in 2002), as well as technology services such as installation, repair and security to individual customers and small businesses should leave savvy investors feeling optimistic about the future prospects of the company, especially at today’s bargain basement price.

Risks to Consider: The office products industry is cyclical and very competitive thanks to superstores such as Wal-Mart (NYSE: WMT) and Costco (Nasdaq: COST), as well as online retailers like Amazon.com (Nasdaq: AMZN). Sluggish business spending and concerned consumers are also likely to dampen results in the near-term, while a recessionary euro zone and the related currency issues remain the biggest challenge for the company… inevitably delaying the time that it will take for the company to see any meaningful returns on its investments overseas.

Action to Take–> Expect Staples to use its prime locations and pricing power to make the most of the back-to-school shopping season. While second-quarter earnings may be muted by continued weakness in Europe and concerns about a global slowdown, savvy investors who recognize the company’s role with consumers and small business can generate immediate income as well as long term capital appreciation at these levels.

Investors can look forward to gradual price appreciation as new and pending legislation takes root, private label products and technology services expand, and market dominance continues to grow as competitors close more stores… ultimately positioning Staples as the best stock for small business growth.