Why Investors Should Buy Overstock.com Stock on a Looming Pullback

With Overstock.com (NASDAQ:OSTK) set to report its third-quarter results and provide its Q4 guidance in a few weeks, OSTK stock looks well-positioned.

Source: Burdun Iliya / Shutterstock.com

I recommend, however, that investors wait for a likely post-vaccine-data pullback before buying.

The online retailer, which specializes in home furnishings, likely got a huge boost from high home sales and the home-remodeling megatrend during  Q3.

Meanwhile, Overstock’s Q4 outlook should get a healthy charge from the continuation of elevated home sales and the beginning of the holiday-shopping season.

A Closer Look at OSTK Stock

On Sept. 21, FurnitureToday  reported that America’s average home price had recently exceeded $300,000 for the first time. That could mean that consumers are buying bigger homes and consequently looking for larger  furniture, the website theorized.

 

 

 

When people move into new homes, they tend to buy furniture for their new residences, and with hundreds of thousands of Americans moving from the cities to suburbia, many renters will be buying homes for the first time. A meaningful percentage of those people will purchase their new furniture on Overstock.com.

In my previous column on OSTK stock I pointed out that RH (NYSE:RH) reported its ‘core demand’ surged 32% year-over-year in June, 34% YoY in July, and 47% in August. Overstock is much more e-commerce-focused than RH, so it’s better-positioned to grow its sales.

Wayfair’s (NYSE:W) Q2 sales zoomed up 84% YOY in Q2. Analysts on average expect Overstock’s Q3 top line to climb only 51.5% YOY. I believe that the company will be able to easily exceed that figure.

Meanwhile, with the e-commerce and home-buying trends likely to remain very strong for the foreseeable future, Overstock should do extremely well during the holiday-shopping season.

Consequently, as I noted earlier, I anticipate that the company will provide very strong Q4 guidance.

A Very Bullish Analyst and an Upbeat Large Fund

Research firm Wedbush recently stated that it has a bias toward Overstock reporting better-than-expected Q3 results.

“Our proprietary survey results, industry tailwinds, and continued WFH/Shelter-in-place rules suggest to us that Q3 revenue will be closer to flat {versus Q2} than to down 26% as currently implied by consensus estimates,” they said.

Meanwhile, last month the venerable fund D.E. Shaw showed that it is very upbeat on OSTK stock by reporting that it had taken a 5.1% stake in the online retailer.

D.E. Shaw noted that it had 2.2 million shares of Overstock, versus just 270,000 shares as of the end of Q2.

I expect Pfizer (NYSE:PFE) to report positive data on its vaccine candidate at the end of October. I think that news will likely result in a meaningful pullback by e-commerce names, including OSTK stock.

The Bottom Line on OSTK Stock

With Overstock slated to report its Q3 results from Nov. 10-Nov. 16, investors can likely buy its shares after Pfizer reports its vaccine data but before Overstock unveils its earnings.

Based on my belief that Overstock will report stronger-than-expected Q3 results, that’s exactly what I advise investors todo. And given my continued faith that Overstock can become the first true competitor to Amazon (NASDAQ:AMZN), I advise longer-term investors to buy Overstock’s shares at that point as well and hold them for many months or even many years.

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.


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