Less than a year ago, online retailer Overstock (NASDAQ:OSTK) was in trouble. Its founder had been ousted after an affair with a Russian agent, and the company’s blockchain business was under U.S. Securities and Exchange Commission investigation. Overstock stock plunged to seven-year lows. Fast forward to 2020 and the stock has been on fire — at least it was until August. Since then, it has plummeted again.
Is this a case of history repeating itself, or will the company pull out of its current dive?
Overstock Have Been Soaring
When the novel coronavirus pandemic struck, Overstock was perfectly positioned to take full advantage of two of the big resulting trends: online shopping and home improvement.
Many brick and mortar stores were closed during lockdowns. Even when they re-opened, consumers were often more comfortable shopping online instead of venturing out. At the same time, people who were in lockdown, self-isolating, or working from home turned to home improvement projects. Vacations became “staycations” and the money they would have spent on holidays instead was spent on their homes. They haven’t just been building decks and updating bathrooms, they’ve also been spending big to buy furnishings, decor and accessories.
Few companies benefited from these trends the way Overstock has. This is part of why some consider it a promising growth stock like those which I explore with Growth Investor.
At the end of April, the company noted that its retail sales in that month — when much of the U.S. was under lockdown — were up 120% year-over-year. A week later, InvestorPlace contributor Luke Lango suggested that Overstock stock (then trading for around $16) could fly to $100. He was right.
On July 30, the company reported second quarter earnings. Gross retail sales of $1 billion were up 114% year over year. Quarterly revenue was up 109% to $793 million — a new record. Diluted earnings per share for the quarter were 84 cents, compared to a loss of 69 cents per share in the second quarter of 2019. In a statement, the company’s CEO was upbeat:
“Second quarter gross sales in our Overstock Retail business more than doubled year over year. The number of new customers more than tripled year over year. Importantly, our customers are buying our core products—home furnishings—from the safety of their homes as part of the country’s new normal. If business continues as I expect, our Overstock Retail business will achieve sustainable, profitable growth this year.”
Not surprisingly, Overstock stock soared in the aftermath of the earnings report, quickly racking up a 26% gain.
By Aug. 20 (when Overstock closed at an all-time high of $122.32), shares had gained a whopping 1638% since the start of the year.
What Happened in August?
However, Overstock’s growth had hit a ceiling. Overstock stock quickly began to slide through the rest of August. By Sept. 8, it had lost nearly half its value.
Several factors contributed to that decline. On Aug. 11, the company announced a secondary stock offering of 2.1 million shares. The company’s CEO continued to talk up its blockchain business, which he sees as the future growth driver of the company. This message has muddied the picture somewhat. There was likely some profit-taking going on by investors who suspected the home improvement boom that had fueled that monster Q2 for Overstock was losing steam. And then came the tech stock selloff.
But the best tech stocks to buy for growth are able to power through things like this. Since they’re positioned to be leaders in key technological revolutions, a few bumps in the road are merely buying opportunities.
Bottom Line on Overstock Stock
Overstock has overcome the challenges it faced in 2019. It has stable management, and its controversial founder and former CEO has sold off his stake in the company. Probably not coincidentally, the SEC probe into the company’s blockchain business seems to have cooled at the same time.
The huge, pandemic-fueled rush for home improvement expenditures may be running out of steam, but even if that’s true, Overstock still stands to enjoy ongoing growth. After all, it tripled new customer signups last quarter, and the convenience of online shopping for furnishings is likely to become as big a draw as safety was.
This is a company that has a ‘A’-rating in Portfolio Grader, and is entering a phase of profitable growth. After falling below $70, Overstock stock offers a buying opportunity. But this may not last — at time of writing, the stock was rallying, suggesting the market has figured that out.
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On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
