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’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 |
While Overstock trades at a discount to Amazon, it lacks exposure to other high-growth markets, namely tablet and cloud, which account for its premium valuation. With eBay Inc (NASDAQ:EBAY), Overstock does trade at a premium but should as earnings growth outpaces eBay’s. Overstock has a lot of room for operating improvements where eBay has fewer levers to pull to improve earnings other than revenue growth.
Conclusion
Overstock.com, Inc. (NASDAQ:OSTK) appears to be at least fairly priced at current levels if the company can continue to execute. Investors should look to buy on any pullbacks. The risk/reward at this point appears to be in line. Historically the company is inconsistent, and a miss one quarter could lead to a large sell-off in the stock. If the long-term story is in place, investors should look at buying on the decline.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article How Could This Stock Still Be Attractive After Recent Appreciation? originally appeared on Fool.com and is written by Mike Thiessen.
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