Overstock.com, Inc $OSTK, an undervalued stock with huge growth potential

Overstock.com, Inc. (OSTK) operates as an online retailer in the United States and Canada. It operates through Retail, tZERO, and Medici Ventures segments. Its leading e-commerce website sells a broad range of new home products at low prices, including furniture, décor, area rugs, bedding and bath, home improvement, and more. The online shopping site, which is visited by tens of millions of customers a month, also features a marketplace providing customers access to millions of products. In addition, the company offers businesses advertising products or services on its website. It provides its products and services through its websites, which include overstock.com, o.co, overstock.ca, and overstockgovernment.com. Further, it also focuses on the development and management of financial applications of blockchain technologies. The overstock (OSTK) is a very popular household name in USA and Canada. The company had a tough time from Jan 2018 to March 2020. During this time the stock dropped from more than $80/share to less than $5/share. So, why did the stock fall? The main reason was “Bad timing”- Overstock suffered from poor timing in its pivot toward blockchain and cryptocurrencies. In 2018, company Executives and mainly the company CEO then Mr. Patrick Byrne was so bullish on the blockchain technology that they discussed advancing plans to sell the e-commerce segment of the company and use the cash to fund its blockchain initiatives Medici venture segments- an Overstock investment subsidiary focused on blockchain technology. In the next few months many of the most popular cryptocurrencies, with Bitcoin slumped over 40%. Investors reacted to that drop by pushing shares of Overstock lower, too as the company previously indicated its interest in pivoting from e-commerce to blockchain business. My bull thesis: In Aug 2019 CEO Patrick Byrne resigned for personal reasons and he was succeeded by Jonathan Johnson. Mr. Jonathan has been working at Overstock since 2002, initially as general counsel, before quickly moving into other roles. He has served as chairman of the board, the head of the core e-tail business, he spent the last six years or so overseeing Medici Ventures before becoming a CEO. Since Mr. Jonathan took the helm as CEO of the company it started to regain market share in the e-commerce space. In the recent quarter(Q3-2021), revenue grew by 102% compared to 2 years ago in the same quarter (Q-1, 2019). In the same period, The General and Administrative Expenses were reduced from 14.1% of revenue to 7.6% of revenue-an improvement of 6.5% or 650 basis points. Adjusted EBITDA went up from -5M or -1.4% of the revenue to 36M or 5.2% of the revenue- an increase of $36.1M or 820% from Q-3, 2019. The stock value is up over 1400% since its bottom back in Mar-2020. The company is outperforming many of its competitors. COVID-19 restrictions and limitations has definitely helped in fueling the revenue growth, but management has also done a pretty good job reacting to the demand while improving EBITDA margin and making the company profitable. Overstock also announced a stock buyback program a few months back stating the company will spend $100 million on buying outstanding common shares. In my opinion, this is just beginning, and we can expect more such positive news in upcoming years. In April 2021, Overstock announced that it closed Transaction with Pelion Venture Partners to Oversee its Medici Ventures’ Blockchain business and going forward overstocks main focus will remain on its core e-commerce business, which continues to realize tremendous revenue, profit, and market share growth. This means going forward company’s focus will remain on its core competency (e-commerce business) while also maintaining a stake with limited to no liability in its blockchain venture. I believe this is a very smart move by the company to reduce its exposure to blockchain technology and to eliminate the mistake that happened in the past which caused stock price downfall.  Right now, overstock has a price/sales ratio of 1.15 which is low compared to its competitors Amazon with a Price/Sales ratio of 3.91 and Wayfair with a price/sales ratio of 1.78. Apart from the e-commerce business overstock also owns equity interest of more than 80% in Blockchain venture tZERO which is expected to grow rapidly in upcoming years. tZERO is a digital security and crypto trading platform, it is also unique in the way that it provides investors an opportunity to invest in private companies. tZero could itself worth billions of dollars in a few years. Valuation: Overstock is trading at a market cap about $3.2B as of today. It has generated $2.8B in revenue and $2.09 in EPS in TTM. The company is expected to grow its earning by an average of 46% per year for the next 5 years. Even, if we take conservative earnings growth and assume that the company would grow its EPS by just 25% per year for the next 5 years then it would make the EPS about $6.4 in 2026. Overstock’s main competitors are Wayfair and Amazon. Both trades at a P/E ratio above 50. Now, considering overstock’s moderate revenue growth compared to its peers we can take 25 P/E ratio to calculate the company’s stock value, the valuation of the stock would be 25x 6.4= $160. Right now, the OSTK stock trades at $74 so that is a 116.2% return in 5 years or average 16.7% return per year. Note: All the numbers and ratios are taken from Yahoo finance or Overstock Investor relations website. This is not financial advice. It is just a personal opinion so please do your own research before making an investment decision.

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Overstock.com, Inc $OSTK, an undervalued stock with huge growth potential

Dec 13, 2021

bullish

fundamentals Analysis

[4 min Read]

Overstock.com, Inc. (OSTK) operates as an online retailer in the United States and Canada. It operates through Retail, tZERO, and Medici Ventures segments. Its leading e-commerce website sells a broad range of new home products at low prices, including furniture, décor, area rugs, bedding and bath, home improvement, and more. The online shopping site, which is visited by tens of millions of customers a month, also features a marketplace providing customers access to millions of products. In addition, the company offers businesses advertising products or services on its website. It provides its products and services through its websites, which include overstock.com, o.co, overstock.ca, and overstockgovernment.com. Further, it also focuses on the development and management of financial applications of blockchain technologies.

The overstock (OSTK) is a very popular household name in USA and Canada. The company had a tough time from Jan 2018 to March 2020. During this time the stock dropped from more than $80/share to less than $5/share.

So, why did the stock fall?

The main reason was “Bad timing”- Overstock suffered from poor timing in its pivot toward blockchain and cryptocurrencies. In 2018, company Executives and mainly the company CEO then Mr. Patrick Byrne was so bullish on the blockchain technology that they discussed advancing plans to sell the e-commerce segment of the company and use the cash to fund its blockchain initiatives Medici venture segments- an Overstock investment subsidiary focused on blockchain technology. In the next few months many of the most popular cryptocurrencies, with Bitcoin slumped over 40%. Investors reacted to that drop by pushing shares of Overstock lower, too as the company previously indicated its interest in pivoting from e-commerce to blockchain business.

My bull thesis:

In Aug 2019 CEO Patrick Byrne resigned for personal reasons and he was succeeded by Jonathan Johnson. Mr. Jonathan has been working at Overstock since 2002, initially as general counsel, before quickly moving into other roles. He has served as chairman of the board, the head of the core e-tail business, he spent the last six years or so overseeing Medici Ventures before becoming a CEO.

Since Mr. Jonathan took the helm as CEO of the company it started to regain market share in the e-commerce space. In the recent quarter(Q3-2021), revenue grew by 102% compared to 2 years ago in the same quarter (Q-1, 2019). In the same period, The General and Administrative Expenses were reduced from 14.1% of revenue to 7.6% of revenue-an improvement of 6.5% or 650 basis points. Adjusted EBITDA went up from -5M or -1.4% of the revenue to 36M or 5.2% of the revenue- an increase of $36.1M or 820% from Q-3, 2019. The stock value is up over 1400% since its bottom back in Mar-2020. The company is outperforming many of its competitors. COVID-19 restrictions and limitations has definitely helped in fueling the revenue growth, but management has also done a pretty good job reacting to the demand while improving EBITDA margin and making the company profitable. Overstock also announced a stock buyback program a few months back stating the company will spend $100 million on buying outstanding common shares. In my opinion, this is just beginning, and we can expect more such positive news in upcoming years.

In April 2021, Overstock announced that it closed Transaction with Pelion Venture Partners to Oversee its Medici Ventures' Blockchain business and going forward overstocks main focus will remain on its core e-commerce business, which continues to realize tremendous revenue, profit, and market share growth. This means going forward company's focus will remain on its core competency (e-commerce business) while also maintaining a stake with limited to no liability in its blockchain venture. I believe this is a very smart move by the company to reduce its exposure to blockchain technology and to eliminate the mistake that happened in the past which caused stock price downfall.

Right now, overstock has a price/sales ratio of 1.15 which is low compared to its competitors Amazon with a Price/Sales ratio of 3.91 and Wayfair with a price/sales ratio of 1.78. Apart from the e-commerce business overstock also owns equity interest of more than 80% in Blockchain venture tZERO which is expected to grow rapidly in upcoming years. tZERO is a digital security and crypto trading platform, it is also unique in the way that it provides investors an opportunity to invest in private companies. tZero could itself worth billions of dollars in a few years.

Valuation:

Overstock is trading at a market cap about $3.2B as of today. It has generated $2.8B in revenue and $2.09 in EPS in TTM. The company is expected to grow its earning by an average of 46% per year for the next 5 years. Even, if we take conservative earnings growth and assume that the company would grow its EPS by just 25% per year for the next 5 years then it would make the EPS about $6.4 in 2026. Overstock's main competitors are Wayfair and Amazon. Both trades at a P/E ratio above 50. Now, considering overstock's moderate revenue growth compared to its peers we can take 25 P/E ratio to calculate the company's stock value, the valuation of the stock would be 25x 6.4= $160. Right now, the OSTK stock trades at $74 so that is a 116.2% return in 5 years or average 16.7% return per year.

Note: All the numbers and ratios are taken from Yahoo finance or Overstock Investor relations website.

This is not financial advice. It is just a personal opinion so please do your own research before making an investment decision.

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OSTK

Overstock.com, Inc.

27.23

-1.07
-3.80%

Return

-60.06%
Change % Since Posting
-40.93
Change Since Posting
68.16
Price When Posted

Metrics

160.00
Target Price
7/ 10
Confidence
3+ Years
Timeframe
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Earnings Per Share
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Financials
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Management
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Price to Earnings Ratio
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Dividend
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