Overstock.com (NASDAQ:OSTK) was once one of the hottest stocks in the entire market. But thanks to a pandemic-driven surge in online home decor shopping, OSTK stock has gone from surging star to fallen angel over the past few months.

That is, in mid-August, Overstock was sitting high at $130, up a jaw-dropping 5,100% from its March lows.

Since then, though, shares of the resurgent online home goods retailer have lost more than half of their value, with the most recent leg down coming on the heels of what was ostensibly a super strong third-quarter earnings report that just didn’t do enough to support the meteoric rally in OSTK year-to-date.

What’s next in this wild roller coaster ride?

Well, for starter’s, it’s time to buy the dip.

The big picture here is that thanks to the Covid-19 pandemic and strong execution from management, Overstock.com is emerging as an economic-oriented leader in the burgeoning “e-home” market — a reality that means Overstock.com has tremendous long-term revenue and profit growth potential.

Up at $130, the OSTK stock price baked in all that potential. Down at $60, it doesn’t.

It’s that simple. So buy the dip because this is a strong stock that is undervalued today.

Here’s a deeper look.

The Booming ‘E-Home’ Market

Prior to the Covid-19 pandemic, the home goods market was stuck in the stone age.

While every other major retail vertical had advanced into the modern, digital era — e-commerce penetration rates in the apparel and consumer electronics vertical hovered above 30% prior to Covid — the home goods market remained a stubbornly, physical-first shopping experience, with just 13% e-retail penetration.

Then the pandemic struck.

Consumers looking to buy new furniture and home decor were forced into the online channel. E-commerce penetration in this under-penetrated category soared. That’s not terribly shocking or all that important.

But what is super important is that e-retail penetration rates in the home goods category have stayed high even as physical furniture stores have opened back up throughout the summer and fall.

Why? Because consumers have learned that the e-home shopping experience is actually pretty robust.

That is, technological improvements over the past few years — such as augmented reality features like “Try in Room”, lightening-fast logistics, robust review systems, data-driven product curation, etc — have made the online home decor shopping experience as robust as the physical one, meaning consumers have little need to go back to shopping for furniture in stores.

And they aren’t.

To that end, the pandemic has permanently leap-frogged the home goods market into the modern, digital era of shopping. And that, of course, is a great thing for OSTK stock.

Overstock.com Is Gaining Ground

In the burgeoning e-home market, Overstock.com is significantly gaining ground as a go-to retailer of affordable home furnishing pieces.

This all started last year, when the company got a new CEO, and implemented a multi-faceted turnaround plan built on improving the platform’s search relevancy, enhancing the mobile web experience, expanding the product’s content on the site, leveraging data to improve pricing strategies, optimizing logistics for shorter delivery times and introducing free shipping on everything.

These turnaround efforts have started to materialize in the form of a better, more value-driven and more relevant e-commerce platform in 2020, at the same time that e-home market demand has surged.

The result? Breakneck growth on all fronts.

In the second quarter, Overstock.com reported 205% new customer growth, 111% revenue growth, 347 basis points of gross margin expansion, 496 basis points of positive operating leverage, and a $51 million boost in adjusted EBITDA dollars. The company followed that up in the third quarter with 141% customer growth, 109% revenue growth, 348 basis points of positive operating leverage, and another $51 million boost in adjusted EBITDA dollars.

To be sure, OSTK stock did fall after the Q3 print, because of a sequential slowdown in customer growth and a sequential drop in revenues. But such concerns are overstated, because the sequential slowdown in customer growth was offset by an uptick in repeat purchase rate, and resulted in an acceleration in overall revenue growth. Meanwhile, the 6% sequential drop in revenues is consistent with the company’s historical seasonality trends.

So, for all intents and purposes, Overstock.com is firing on all cylinders today, mostly because the company is emerging as a go-to economic Wayfair (NYSE:W) of sorts, at a time when the e-home market is booming.

Overstock.com Stock Is Undervalued

Given the company’s accelerating growth trends and robust long-term growth potential, OSTK stock is undervalued at current levels.

The math here isn’t hard to follow.

The U.S. home retail market should sustain historically normal 3% to 4% compounded annual growth over the next decade. E-retail penetration rates in that category should continue to rise at a rapid pace, paving the way for 10%-plus annualized e-home market growth. In that market, Overstock.com should be able to leverage its turnaround plan and economic-focused value prop to gradually expand market share, implying annualized revenue growth potential into 2030 on the order of 15%.

Assuming the company leverages increased scale to improve its profitability profile, my numbers suggest that Overstock.com can grow to about $10 in earnings per share by the end of the decade.

Based on a 20-times forward multiple, $10 in 2030 earnings per share implies a 2029 price target for Overstock.com stock of $200. Discounted back by 8.5% per year, that implies a 2020 price target of roughly $95.

Thus, around $60 today, OSTK stock is attractively undervalued.

Bottom Line on OSTK Stock

Long-term, I like Overstock.com stock. But valuation matters. And up at $130, the valuation on OSTK stock was overextended.

Down here at $60, though, the price is right. So buy the dip. Weather near-term turbulence. And let secular e-home fundamentals carry this stock back to $100 over the next few months.