Online discount retailer Overstock.com (NASDAQ:OSTK) could be considered a beneficiary of the e-commerce boom of 2020. In the wake of the novel coronavirus pandemic, digital retailers have thrived and OSTK stock holders have enjoyed impressive gains.
Yet, this doesn’t tell the full story. After peaking in August, the OSTK stock price was literally cut in half by the end of October. Indeed, the month of October was brutal for OSTK shareholders.
Does this mean that it’s time for OSTK stock investors to abandon ship? Not necessarily. As I see it, there’s a mismatch between the trajectory of the share price and the health of the company.
That’s the type of misalignment that presents an opportunity for bold traders. If Overstock.com is doing just fine while OSTK stock is tanking, contrarians should relish the prospect of buying an asset that’s worth more than its price tag would suggest.
A Closer Look at OSTK Stock
While it is true that OSTK stock holders benefited from the e-commerce explosion, it wasn’t always a smooth ride in 2020. As the coronavirus crisis took hold in the U.S. in February and March, the OSTK share price plunged from the $9 level to a gut-wrenching 52-week low of $2.53.
The situation certainly improved after reaching that low point, though. Indeed, a run-up ensued which culminated in OSTK stock’s 52-week high price of $128.50, achieved on Aug. 20.
This was, I believe, a case of “too much, too fast.” As a result, OSTK stock holders had to cough up some of those incredible but ultimately unsustainable gains.
That being said, it does appear that the retracement to $56.10 on Oct. 30 may have been overdone. It seems like the trading community is hell-bent on punishing OSTK, but the company’s fiscal data might indicate the potential for an imminent turnaround.
In light of Overstock.com’s third-quarter earnings results, one could build a strong argument that the trading community is being too hard on OSTK stock.
Even the most optimistic prognosticators probably weren’t prepared for these third-quarter figures:
- $732 million in total net revenues, marking a whopping 111% year-over-year increase
- $717.7 million in retail-segment revenues, up 110.6% on a year-over-year basis
- $40 million in adjusted EBITDA (non-GAAP), signifying a year-over-year improvement of $58 million
- 141% year-over-year growth in new customers
- 19% increase in the new-customer repeat-purchase rate
- Cash and cash equivalents totaling $529.7 million as of Sept. 30, a marked improvement over the $321.2 million as of June 30.
Those are all outstanding stats, but the centerpiece is the 111% revenue growth. With that in mind, the downtrend in OSTK stock just doesn’t jibe with the company’s robust fiscal health.
Eye on Home Furnishings
I have a confession to make. There’s a detail from the quarterly results that I purposely omitted, until now. Specifically, home furnishings comprised more than 92% of Overstock.com’s third-quarter sales.
This is significant because it represents the company’s responsiveness to a shift in consumer trends. In particular, there’s been an emphasis on home improvement as people have been stuck indoors during the pandemic.
Overstock.com CEO Adrianne Lee explained how this trend appears to have benefited the company in 2020:
“Customers are increasingly finding our home furnishings products and coming back to make repeat purchase… we believe that the shift to purchasing home furnishings online will continue and that this shift should serve as a tailwind for us.”
Thus, it’s not a bad thing that Overstock.com is heavily reliant on home furnishing product sales. As long as this trend persists, OSTK stock holders can expect the company to maintain its strong financials, which should eventually be reflected in the share price.
The Bottom Line
Has the OSTK stock price been unfairly beaten down? It could be argued that the share price ran up too quickly earlier this year and therefore needed a pullback.
So, if you wanted a pullback, you got one. Now there’s a possible mismatch between Overstock.com’s impressive financial figures and the trajectory of the OSTK share price.
Daring investors can take advantage of this mispricing with a long position before the bulls stage a comeback.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.