In the longer term, Overstock (NASDAQ:OSTK) is very well-positioned to benefit from Americans’ increased spending on their homes and from the exodus out of America’s cities. Further, Overstock stock should get a meaningful boost from the recent approval of its application to operate a retail brokerage and investment banking service.
Finally, I remain convinced that the company, which specializes in selling products for homes but also offers many other consumer products, can eventually become the first, real, viable competitor to Amazon.com (NASDAQ:AMZN).
Increased Spending on Homes
The very strong results recently reported by RH (NYSE:RH) — formerly Restoration Hardware — show that, amid the coronavirus and the exodus out of many U.S. cities, Americans are spending a tremendous amount of money on their homes.
A home furnishings retailer, RH reported that its “core demand” had surged 32% year-over-year in June, 34% YoY in July, and 47% in August. Over the long-term, the retailer expects to generate net revenue growth of 8-12%. Considering the fact that RH has historically been primarily a brick-and-mortar retailer, those are tremendous numbers.
Demand for home furniture should continue to be very strong as more Americans work at home than previously. Also likely to strengthen that trend is the continued exodus from American cities, spurred by increased crime, higher taxes, and the WFH trend.
Given Overstock’s status as a leading online seller of home furniture, the company’s financial results and Overstock stock should be boosted over the longer term by continued strong demand for home furniture.
Brokerage Should Be Lucrative
On Sept. 10, Overstock’s subsidiary, tZERO, announced that it had received permission from the Financial Industry Regulatory Authority, or FINRA, to provide “retail brokerage services for digital securities.”
Even if tZERO, emulating Robinhood, chooses not to charge retail investors commissions on stock trades, the unit’s retail brokerage services should be very lucrative.
In Q2, Robinhood generated $180 million of revenue from trades, nearly doubling YoY. Most of its sales came from options trades. Although the popularity of stock trading could slip if markets continue to pull back, in recent months, many millenials have become interested in trading stocks for the first time, and that trend is likely to stay at least somewhat intact for some time.
If tZERO can generate 30% of Robinhood’s Q2 revenue on an annualized basis, that would come in at $216 million. Considering Overstock’s 2019 revenue of $1.46 billion, there’s a good chance that tZERO will move the needle.
Finally, I believe that the entrance of tZERO into the retail brokerage sector will create a very strong cross-selling opportunity for Overstock. Specifically, tZERO’s services can be advertised on the Overstock.com e-commerce website and vice versa. Over time, this cross-selling opportunity could very well become quite lucrative.
Amazon’s First Real Competitor
As I noted in a previous column, Overstock may have what it takes to start to become the first pure-play e-commerce challenger to Amazon. Unlike Wayfair (NYSE:W), Overstock sells many products other than home furniture, and it generally has more professional merchants than eBay (NASDAQ:EBAY).
The fact that Overstock’s Q2 revenue jumped over 100% shows that the company’s popularity is on the rise. That should give it the potential to soon begin taking a significant amount of market share from Amazon.
The Bottom Line on OSTK Stock
Overstock should continue to benefit from very strong demand for home furniture. Meanwhile, its entrance into the retail-brokerage space should be quite lucrative and creates a great, two-way cross-selling opportunity for Overstock. Finally, the company is well-positioned to become a pure-play e-commerce rival to Amazon.
Given the very strong growth potential of Overstock and the stock’s shorter-term momentum from the coming entrance of tZERO into the retail-brokerage sector, longer-term investors should buy Overstock stock at this point.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.