Retail

Why Overstock.com Can See Continued Growth and Upside

The public may have overlooked Overstock.com Inc. (NASDAQ: OSTK) and now may have a hard time describing its full operations. Despite being down handily from its highs, the stock is up tenfold in 2020. One analyst has even stronger conviction that the shares can rise much higher.

Wedbush Securities has added Overstock.com to the investment committee’s Best Ideas List. The firm’s Ygal Arounian notes that there is a bias for substantial upside to consensus third-quarter expectations. He also noted that the stock has a historical trading pattern around earnings that suggests Overstock.com could have meaningful upside from the current share price.

After closing at $72.65 a share on Wednesday, Overstock surged on Thursday, based on this call. Arounian noted the tenfold rise, but he also noted more than a 40% drop since the high of $128.50 was seen in August.

Remember that no individual analyst call should ever be used as a sole basis for buying or selling a stock. That would be the case even when the strongest conviction is used behind a call. Also note that not that many analysts follow this stock.

As for the bias, Wedbush has a proprietary survey of about 1,000 consumers. The firm also sees industry tailwinds and continued rules of work-from-home and shelter-in-place leading its revenues to better than expected levels. Those sales now are expected to come in closer to flat sequentially than the current consensus estimate of −26%.

Arounian sees revenue rising more than 80% to $2.66 billion in 2020, then rising to $2.95 billion in 2021 and to $3.58 billion in 2022. The current Wedbush estimates are $0.45 in earnings per share and for revenue to have dipped just 5% from last quarter to $747 million. They showed consensus estimates of −$0.23 per share and $580 million in revenues.

Despite some consumer spending concerns, Wedbush believes that strong sales at home-related retailers persisted through the month of September, even without the additional government stimulus. Arounian’s report said:

Our proprietary survey of ~1,000 U.S. consumers indicates that home goods was one of the largest beneficiaries of shelter-in-place (SIP) orders moving retail spend online, and according to our survey, has improved materially over the past few months. While around half of our respondents in May noted purchasing home goods online, nearly 65% noted having done so by August. This trend likely began with a desire to improve homes’ comfort for working from home (WFH) and spending more time at home, and we believe consumers have come to reallocate travel and entertainment spending to areas such as home goods.

Overstock already was rated as Outperform at Wedbush, and the firm’s price target is $92. That price target is said to be based on a forward enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of 15.2 times the firm’s 2022 adjusted EBITDA estimate.

As for other analyst calls, Credit Suisse started Overstock.com with an Outperform rating and $91 target on September 16. Needham also started it as a Buy rating with a $96 target on September 14, and BofA Securities issued a new Neutral rating with a $78 price objective on September 4. The biggest analyst call was a new Overweight rating with a $140 price target from Piper Sandler in August, but that was right before the all-time high was seen.

Shares of Overstock.com traded up 8% at $78.50 late Thursday morning. Its 52-week range is $2.53 to $128.50.