Is Overstock Trading at a Discount?

With shares of Overstock (NASDAQ:OSTK) trading at around $14.11, is OSTK an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

To immediately answer the question in the title, the answer is no. With a P/E of 139.61, Overstock is definitely not trading at a discount. However, that doesn’t necessarily mean it should be avoided. This is one of those stories where you can point out many positives and negatives and make a solid case for either side, as in bullish or bearish.

The Forward P/E is a much more reasonable 17.16, which is close to the S&P 500 average. Continuing with potential positives, Overstock has seen 7.9 percent revenue growth over three years, 7.8 percent revenue growth over five years, and 27.8 percent revenue growth over 10 years. Of course, you can take two different angles here. On one hand, these are solid numbers. On the other hand, they’re not heading in the right direction. Then again, not many companies can maintain 27.8 percent revenue growth. Perhaps the biggest piece of positive news recently was Q3. Overstock completely blew away the number and shocked the street. EPS beat expectations by 200 percent. Revenue also improved YoY. Another potential positive (potential is important in this case) is that there are rumors that those close to the company believe the company can grow revenue by very substantial amounts in the coming years.

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Now let’s take a look at the negatives. First off, shareholders hate management. Considering the stock price is very close to its IPO price, that’s understandable. It has been a wasted decade for investors. During that timeframe, Overstock has been outperformed by Amazon (NASDAQ:AMZN) by 1,300 percent. Another big negative is that Overstock.com has seen an 11 percent decrease in traffic over the past three months. Then there are razor-thin margins. For example, Overstock has a profit margin of .23 percent. Furthermore, 36.60 percent of the float is short. However, this could be a potential positive if there is a short squeeze due to good news.

Let’s take a look at some more important numbers so we can get a clearer picture on the story and where this company is headed.