Is Overstock Overvalued?

Overstock.com Inc (NASDAQ:OSTK) is an American internet retailer that focuses on overstock items, like household goods and furniture, at close-out prices.

The company was founded in 1999 (around the same time as e-commerce giants like Amazon and eBay) and went public in 2002. Since then, it took investors on a wild ride.

Now that it’s back on the rise after the pandemic, some investors wonder is Overstock overvalued?

The company is unique in the retail sector in that its stock price seems to be tied to that of Bitcoin. Not only was Overstock one of the first retailers to accept the infamous cryptocurrency, but it also has its own blockchain investment firm (Medici Ventures), along with a blockchain-based securities exchange in tZERO.

Its unique position has some market analysts calling it the next Amazon. And they may not be crazy – unlike Long Blockchain Corporation, Overstock did more than just insert a buzzword in its name. If blockchain technology takes off, it’s positioned to become the sector’s AWS, and that’s the key to Amazon’s trillion-dollar valuation.

Are investors overpaying for overstock or would you be lucky to buy in at these limited time prices?

Why Overstock Stock Went Up

The pandemic gave Overstock a boost it needed – the online furniture space grew during this period, with over 1.56 billion more global visits to their websites in March 2020 than the prior year.

Retail furniture stores are notoriously bad with their online presences, and that enabled a slew of startups like Burrow and Joybird to pop up. Overstock simply had to leverage its existing position to grow the business.

But that’s not all – the company is heavily invested in blockchain technology. As the first retailer to accept the cryptocurrency, former CEO Patrick Byrne was a huge proponent of it. That tied the company’s stock price to the crypto industry, which was in steady decline from 2018 through 2020.

New CEO Jonathan Johnson appears much more conservative and is giving up some of the blockchain and crypto business to partners. It wants to focus on its core competency of online retail…except it already lost that battle to Amazon for decades.

This has some investors wondering if Overstock may be a worse speculative bet than Bitcoin.

Overstock Financials Spotlight Lofty Valuation

Overstock started 2021 with a market capitalization in the range of $1.5 billion. It soon grew to nearly $4 billion by the first week of February, although analysts warn it may be volatile through 2021. Its P/E ratio is well over 350x, which is high even when compared to Amazon (AMZN).

OSTK share price fell to a 52-week low of $2.53 during the March 2020 crash before rising to a high of $128.50 by year end. That rise was short lived, and it didn’t come back until a February rally.

While that rise can be attributed to many things, the company’s Bitcoin correlation certainly played a part. However, that industry is considered a distraction for some investors who prefer to stick to more stable money markets.

The company’s most recent financial report shows that it holds over $595 million in cash and cash equivalents, compared to $423 million in debts and liabilities.

It brought in $1.87 billion in net revenues in the first nine months of 2020, an increase from $1.09 billion in the same period for 2019. This led to $36 million in net revenue for the period, compared to a $105.06 million loss in the prior year.

This has investors worried the upswing may be temporary.

Is Overstock Valuation Too High?

Overstock has a storied history, but its founder isn’t as successful as Amazon’s Jeff Bezos. Instead of being in the news as the world’s richest man, he makes headlines for other reasons.

Former CEO Byrne was an interesting character to say the least – his 2019 resignation was punctuated by claims of his involvement with the Deep State and investigations into Hilary Clinton and Russia election interference claims.

His continued claims of election interference put him in legal crosshairs, and the company is eager to distance itself from him.

But some portion of Overstock’s fanbase comes from that origin. Its blockchain fandom could shy away from new leadership as it distances itself from the blockchain and crypto.

What it all boils down to is a company that is fully valued at a share price of $102. OSTK share price is technically overvalued when trading above that level.

Will Overstock Stock Fall?

Overstock fell several times in the past, and it’s not out of the question for it to happen again. Arguably, the company’s biggest asset is that it’s not Amazon, so it benefits from the counterculture. But upstarts like Joybird and Burrow, along with retailers like Ikea, have a bigger cult following online.

This could limit the company’s growth, especially when the economy rebounds.

On top of this, stores like Ross (ROST) and Home Goods that traditionally avoided e-commerce are getting into the game. The pandemic closed too many brick-and-mortar stores, so competitors are building their online brands.

Even individual brands are beefing up their e-commerce, and that could spell trouble for Overstock’s bottom line in the long run. That blockchain play, as weird and speculative as it is, could have been the one life preserver to pull it out of retail obscurity, and it gave up equity to bring in partners.

Without the blockchain business, Overstock is just another in a long line of discount retailers online. It never rose to Amazon’s level, and doesn’t possess the real strengths of the Seattle based company.

Is Overstock Overvalued? The Bottom Line

Overstock.com is a long-standing ecommerce company that grew up in the time of Amazon. Of course, it never reached the same market valuation. But that could improve in the 2020s, as the company’s early bet on Bitcoin and blockchain is already paying off.

But that blockchain revolution was started by its founder and former CEO. There’s a new captain steering this ship much more conservatively while Byrne involves himself more in the political sphere.

The new direction puts the company more in line with traditional retailers. And that may mean it misses the boat again on growing out of the shadow of its competitor Amazon.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.