B.Riley just upgraded the shares of this Internet retailer from “neutral” to “buy”. Combined with the news that the company is offering financing to its customers via a new, private credit card, shares are on the rise.
Overstock.com (OSTK)
from The Value Bounce
Overstock.com (OSTK) is an online retailer offering discount brand name, non-brand name, and closeout merchandise, such as bed and bath goods, home décor, kitchenware, furniture, music, books, watches and jewelry, apparel, electronics and computers, sporting goods, and designer accessories.
In addition, it provides channels for customers to purchase cars, insurance and travel products and services. Overstock also sells advertising.
The company derives its revenue through two distinct avenues. The majority of revenue (88.8%) comes from fulfillment partner revenue. Revenue from this segment comes from merchandise sales, which fulfillment partners ship directly to consumers and businesses. This method proves to be essentially riskless, as OSTK is just the intermediary.
Direct revenue, which accounts for the other 11.2% of total sales, is derived from merchandise sales that the company owns. The company aims to increase this share because margins are higher.
Overstock’s share price is down 55.9% this year, but has “bounced” 8.2% recently on stronger
growth. On a price to sales basis, OSTK trades at near an all-time low, as well as below competitors. OSTK trades at just .260x its sales, compared to its closest competitor Zullily (ZU), that trades 3.1x sales. Furthermore, OSTK trades at a sharp discount to Groupon’s trading level of 1.6x sales.
In the second quarter, revenue grew an exceptional 13% year over year, driven by a 9% increase in orders, coupled with a 6% increase in order size. Although gross profit margin declined form 19.7% to 18.8%, total gross profit improved 8%, backed by accelerating revenue.
Buy Overstock.com (OSTK) up to up $17 with a 20% trailing stop.
Carl Delfeld, The Value Bounce, www.thevaluebounce.com, 800-250-9657, July 24, 2014