Shares of internet retailer Overstock.com (NASDAQ:OSTK) — which primarily specializes in home décor and furniture — popped sharply on Monday. Driving the news was the disclosure of an activist investor holding a significant stake in OSTK stock. This backdrop implies that the activist will seek engagement with Overstock’s leadership team, sparking renewed interest in the struggling enterprise.
According to Seeking Alpha, JAT Capital disclosed in a filing with the U.S. Securities and Exchange Commission (SEC) that it holds a 9.1% stake in OSTK stock. Further, the investment firm revealed that it may seek to engage with Overstock’s board of directors or members of management in an effort to achieve long-term value.
Notably, a core component of its recommendation involves a company-wide overhaul of the management and board compensation structures. Specifically, this directive aims to reduce or eliminate cash compensation in favor of stock option participation.
As well, JAT believes that Overstock’s chief executive role “should be offered a meaningful option package at strike prices meaningfully above current market price to align interests with shareholders,” per Seeking Alpha. Interestingly, JAT also called for Director Marcus Lemonis to be promoted to the executive chairman position.
OSTK Drives Higher on Alignment Possibilities
Fundamentally, JAT’s disclosure couldn’t have come soon enough for OSTK stock. Up until early August, the underlying retailer looked incredibly promising. However, a strong bout of volatility resulted in shares losing roughly 57% against this year’s closing high. Therefore, JAT may be attempting to rally the troops to bolster the company.
Earlier this month, Lemonis — an entrepreneur who gained popularity thanks to CNBC’s television program The Profit — made business headlines when he bought a large amount of OSTK stock. Following two transactions with a filing date of Oct. 4 and Oct. 5, Lemonis bought more shares in a third transaction dated Oct. 10.
It’s likely that JAT wants to facilitate such confidence among other Overstock insiders. According to data from Fintel, insider buys going back to October 2005 came out to 36 transactions. In sharp contrast, insider sells clocked in at 236 transactions.
While insiders sell for various reasons — including mundane ones such as tax considerations — a wide discrepancy between divestments and acquisitions may raise eyebrows. To remedy this dynamic, JAT aims to align Overstock’s leadership interests with that of shareholders of OSTK stock.
Why It Matters
Currently, TipRanks reports that OSTK stock carries a moderate buy consensus view among covering analysts. However, this assessment is on shaky ground, breaking down as two buys and five holds. However, experts are broadly optimistic, anticipating a per-share target of $37.33 or about 126% up.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
