Overstock.com, Inc. (OSTK): Can This Stock Go Even Higher?

Overstock.com, Inc. (NASDAQ:OSTK) has emerged as a market favorite in the e-commerce space. The stock is trading higher by 20% on Thursday, with one-year gains of 425%, and I am going to show you how it could still go higher!

What’s taking this stock higher?

Overstock.com, Inc. (NASDAQ:OSTK)’s 16-month rally has been the effect of a two-part cause. Initially, in 2012, revenue growth was slow, but margin expansion was rapid, which pushed its shares from $5 to $15 rather quickly.

Then, in the last two quarters, continued margin improvement combined with accelerated revenue growth has pushed shares to a new level, near $35.

While many may think that no further upside exists, as I look at the company, I still see a cheap stock with significant upside potential.

The big 3 & the best 1

The big three in e-commerce are Amazon.com, Inc. (NASDAQ:AMZN), eBay Inc (NASDAQ:EBAY), and lastly Overstock.com, Inc. (NASDAQ:OSTK). Strangely, on a day where Overstock.com, Inc. (NASDAQ:OSTK) shows significant fundamental strength, eBay Inc (NASDAQ:EBAY) shows weakness, falling lower by nearly 7%.

eBay posted top-line growth of 14%, as its user base continues to outperform sales growth. However, eBay is not why I think Overstock.com, Inc. (NASDAQ:OSTK) still has room to run higher, but rather three specific metrics.

	Amazon	eBay	Overstock.com
Price/Sales	2.20	5.12	0.57
Operating Margin	1%	21%	2%
Revenue Growth (MRQ)	21.9%	14%	22%

You should first note that Amazon.com, Inc. (NASDAQ:AMZN) is not a company whose primary concern is margins. The company has said that its focus is on reinvesting its revenue into the business so that it can grow. One way is by cutting prices to near the cost of production.

There is a belief on Wall Street that Amazon.com, Inc. (NASDAQ:AMZN) could flip a switch, change its approach, and return margins of 3-5% at any point they desired. This is yet to be seen, but with all of the company’s gross profit spent on SG&A and R&D, this thinking does appear logical.

eBay Inc (NASDAQ:EBAY) earns a large chunk of its profit from PayPal, but its core business also produces greater margins than what we see with Amazon. In fact, the company returns more than 5% of its revenue as operating profit with its core business. Therefore, 5% operating margins seem to be the standard for effective business management in the e-commerce space.

Overstock.com, Inc. (NASDAQ:OSTK) has operating margins of just 2%, which is one of the reasons that it has improved so rapidly. During its last quarter, Overstock’s earnings grew 183% and during this current quarter, income grew 687% year-over-year. This shows the rate at which Overstock.com is improving its bottom line, and with margins of just 2%, the company still has a lot of room to improve its bottom line.