After almost 20 years as CEO of Overstock (NASDAQ:OSTK), Patrick Byrne resigned from the company and board August 22. The highly controversial leader’s resignation caused OSTK stock to briefly jump by more than 15%. However, shares dropped to $15 by the beginning of September.
As I write this, Overstock stock has recovered most of those losses trading around $20. Still, it’s well below its January 2018 all-time high of $89.80.
My InvestorPlace colleague, Dana Blankenhorn, recently highlighted logistics consultant Brittain Ladd’s belief that Byrne should have been fired years ago. It’s hard to argue with that sentiment. Byrne was not the man or woman you would want running the local McDonald’s (NYSE:MCD), let alone a company with more than 2,000 employees and revenues of more than $1.8 billion.
Perhaps it was Byrne’s family’s relationship with Warren Buffett that kept the board at bay all these years. Or maybe it was Byrne’s significant ownership stake in the company. Whatever the case, Byrne is gone from the company. Currently, Jonathan E. Johnson III, the head of its Medici Ventures blockchain subsidiary, is running Overstock on an interim basis.
Anybody but Byrne would be a better CEO at this point. As my colleague stated about OSTK in August, it’s hard to see any future for the company. Or for that matter, Overstock stock.
That said, I’m sure some would choose to speculate on OSTK stock.
Is $15 the buy zone? Or should you wait for single digits?
It Isn’t Worth $15
In March, I suggested that speculative investors might be interested in buying OSTK stock below $15. That’s because Byrne might sell its hugely unprofitable retail business to focus on its blockchain investments.
Of course, we know that never happened under Byrne’s watch. But as recently as the end of June, the former CEO is on record suggesting offers were possible.
“Two very attractive acquirers that I would have put high up on my list have shown up,” Byrne said June 25 at the Fortune Brainstorm Finance conference in Montauk, New York. “People have seen that our earnings have turned.”
How much could Overstock get for a business that saw revenues decrease by 23% in the second quarter while reducing its loss by 62%, from $64.9 million in the second-quarter 2018 to $28.2 million this past quarter?
Wayfair’s (NYSE:W) gross profit margin in Q2 was 23.9%. It trades at 1.4-times sales. In the latest quarter, Overstock’s retail business had a retail gross margin of 19.7%. OSTK trades at 0.4-times sales.
Let’s assume that its retail business could go for halfway between Wayfair’s multiple and its own. That would mean a multiple of 0.9 or $1.47 billion based on trailing 12-month revenue of $1.63 billion.
This assumes that the company could find someone to buy its retail operations. Secondly, GARP Research analyst Bill Baker stated in February that he thought Overstock could fetch $100 million for its retail business, a far cry from $1.5 billion.
OSTK Stock Below $10 Might Be A Buy
Let’s assume Overstock could get $100 million for its retail business. At a current market capitalization of $721 million, this suggests the blockchain businesses are worth $621 million or $17.64 a share.
Medici and tZero generated tremendous losses in the second quarter from just $6.2 million in revenue. This means that the blockchain assets would have to be worth significantly more than what the balance sheet says they are or as a multiple of sales or earnings.
Frankly, I don’t think there’s a hope in Hades that its blockchain assets are worth anywhere near $18 a share.
However, below $10, a speculator might bet on those assets adding up to more than $350 million on a combined basis.
With or without Patrick Byrne, I wouldn’t go near OSTK stock unless “risk” is your middle name.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.