Overstock Stock Looks Poised to Pounce Under Post-Pandemic’s New Normal

The media likes to focus on Zoom Video (NASDAQ:ZM) as its poster child of a novel coronavirus stock winner. But Overstock.com (NASDAQ:OSTK) has quietly eclipsed the tech platform’s shares, with OSTK stock rising more than six-fold year-to-date, 40% more than Zoom.

Image of overstock.com (OSTK) logo on a laptop with a plain yellow background.
Source: Burdun Iliya / Shutterstock.com

Unfortunately, that’s not any consolation to recently buyers. OSTK stock is down 60% from the August highs. Usually this means it could be a bargain after such a drubbing. Not necessarily, because it is still 2,000% above the March low.

Shockingly, OSTK stock rallied over 5,000% on the back of the digitization meme. The global lock-down created a panic rush into the cloud and this included shopping. Stocks like this and Wayfair (NYSE:W) rode the Amazon (NASDAQ:AMZN) coattails and blossomed. I caught the breakout months ago and got out happy with a quadruple win. Little did I know I would miss out on a massive run.

Today’s discussion is to determine if it is safe to buy the dip. Spoiler alert, the answer is “maybe.” It all depends on the investor time frame.

If the idea is to own the shares as a long-term investment then nibbling after this dip makes sense. However I caution against having too much conviction and taking a full-size bet. If you need a refresher course on what could happen, look back to August of 2018. Back then it fell apart and collapsed 93% to under $3 per share. The pandemic shut-down was the best thing that ever happened to it this year.

OSTK Stock Makes for Quick Gains and Losses

Overstock (OSTK) Stock Chart Showing Potential Support
Click to Enlarge
Source: Charts by TradingView

Clearly this is a momentum stock, so it moves fast and long in either direction. It doesn’t leave much room for error. Investors should be humble and realistic leaving the door open to being wrong. On the way up, it seems invincible and on the way down it looks headed to zero. In either case, it takes discipline to recognize the opportunity and the potential trap.

Traders who loved it on the way up and wished they owned it can consider a nibble. Using options is my favorite way of doing this. Buying 1,000 shares of OSTK stock risks $51,400 now. With options I can create a buffer. There I can sell the January OSTK $35 put and collect almost $2 per contract. For the equivalent of 1,000 shares, I collect $2,000 today and I don’t even need a rally to profit. As long as the stock is above $35 I am a winner. Alternatively, I buy the shares at a 40% discount from here and breakeven at $33. Compare this to someone who bought the shares outright, they would already be down roughly $20,000.

The New Normal Suits It

The pandemic made the fundamental picture on Overstock.com murky. Demand ballooned so fast that the traditional metrics are in limbo. They will remain so until they roll over the start of the sales spike close to March of next year.

Meanwhile, there is no evidence of bloat. The stock price has very little hopium because the price-to-sales is under 1x. Management has doubled its run-rate in revenues and still the bulls have not gone crazy with expectations. The correction brought those metrics back in line so it makes more sense now. For absolute comparison, Zoom’s price-to-sales is almost 100x. This is literally 100 times worse than Overstock.

Beauty is in the eye of the beholder and this stock has its fans. I wasn’t particularly fond of it but I don’t let that stop me from trading it. My thesis is that the holiday season is going to shock a lot of people in a good way. Stocks like this, AMZN and W are going to do well in the first quarter of next year.

There is risk from the chart and that’s due to the lightning-fast exponential ascent it had. The “what comes up, must go down” is proving its truth. Once it lost $60 per share, it may have triggered a bearish pattern with nefarious intentions. The bears could be eyeing another $20 worth of downside.

It sounds shocking but remember, OSTK stock rallied over 5,000%, so there is froth it could shed.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2020/11/overstock-stock-looks-poised-to-pounce-under-post-pandemics-new-normal/.

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