Overstock.com, Inc. (OSTK): How Could This Stock Still Be Attractive After Recent Appreciation?

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Overstock.com, Inc. (NASDAQ:OSTK) shares are up over 88% YTD and 290% over the past twelve months. The performance of the stock has been stellar and has outperformed its e-commerce peers. However, often when stocks rise rapidly, they overshoot. Expectations also move up too quickly, and the company misses at some point. Overstock has had misfires in the past, but it appears this one may be different. Also, if consensus FY13 and FY14 earnings estimates hold, the stock is not expensive versus its peers.

Overstock.com, Inc. (NASDAQ:OSTK)Overstock.com, Inc. (NASDAQ:OSTK) is an e-tailer of liquidation merchandise. It sells a wide range of products on its website, including home goods, electronics and even jewelry. It only actually owns about 40% of its inventory with the remainder owned and shipped from its partners. The company has recently expanded its model to include new products along with surplus goods.

Overstock’s Return to Growth

Overstock.com shares traded at around $16 at the end of 2010 but went into a steady decline through the end of 1Q12 when it bottomed out at about $5 per share. The company was losing market share and had operational issues.

Since the end of 1Q12, things started to turn around at Overstock.com, Inc. (NASDAQ:OSTK). First, it started to grow again. Revenue is forecast to grow at Overstock in the low-to-mid teens going forward; while that is still below its peer group of average of 17%, it’s a big improvement from the past few years. This represents a significant acceleration in growth from the 4.2% y/y growth in 2012 and a complete reverse from the 3.3% revenue decline in 2011.

The stock increased in value by 65% in the period just after their first quarter report behind the performance (and aided by analyst upgrades). While the sales outlook was improved, as was confidence in 2013 forecasts, the company also executed operationally and delivered consistent gross margins (a problem in the past) with a marketing spend at a sustainable level. This all happened during a turnover in management. The CEO was on medical leave, and the CFO and COO were being replaced, which made the results more shocking. Since then, the CEO has returned to working with the company full-time.

Competitors

Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) also are part of the online retailer universe. These companies and Overstock.com, Inc. (NASDAQ:OSTK) have benefited from an ongoing shift to buying online. The increase in purchases via smartphones has led to a further acceleration of the trend that will likely continue. In particular, eBay has grown faster than Overstock in recent quarters, with revenue increasing y/y in the upper teens. Amazon.com, Inc. (NASDAQ:AMZN) has also enjoyed success over the past few years and positioned itself not just to benefit from its online retail business but from the shift to the cloud and tablets.

Market Cap P/E TTM P/E FY14 EV/EBITDA TTM
OSTK 636.9M 32.8x 20.4x 17.2x
EBAY 66.6B 24.9x 15.9x 14.2x
AMZN 124.8B NA 85.6x 43.8x

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