Overstock.com Inc

Overstock.com Inc (Nasdaq: OSTK) is an online retailer, which sells a broad range of home products, including home improvement, furniture, bedding and bath products, among others.

Investment Highlights – SPECULATIVE BUY at USD 66.00

• OSTK is well-positioned to sustain its profitable trajectory and capture market share since it is witnessing robust and continuous demand.
• During Q2 FY21, the Company reported both profitability and growth, underpinned by disciplined strategy and operational improvements.
• In Q2 FY21, the average order value jumped 33% year-on-year to US$213.
• Over the past four years (FY16 to FY20), revenue and gross profit have surged at a CAGR of 9.10% and 15.00%, respectively.
• From a technical standpoint, OSTK’s stock price is trading close to its lower Bollinger Band, while 14-day RSI (25.79) is reiterating its oversold position.

Key Risks

• OSTK’s price has plunged around 20% in the past year, showing underperformance against the Nasdaq index. Moreover, lockdown easing can subside the accelerated online shopping trend.
• The resurgence in Covid-19 cases can increase the Company’s operating costs, since supply chain disruption, labor absenteeism, and input prices continued to distort the market.

Q2 FY21 Financial Highlights (for the three months ended 30 June 2021, as on 29 July 2021)

 (Source: Company Website)

• During Q2 FY21, there was a 4% increase in revenue. Subsequently, gross profit stood at US$175 million, representing 22% of total revenues.
• The adjusted EBITDA was US$44 million in Q2 FY21, representing 5.6% of net revenues.
• As of 30 June 2021, the Company reported US$536 million in cash and cash equivalents.
• The active customer base reached 9.2 million by the end of Q2 FY21, reflecting a 31% increase year-on-year.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

Overstock shall continue the growth momentum through the remainder of FY21 and beyond since the furniture and home furnishings market is large and growing. Moreover, the Company is well-positioned to capitalize on favourable market trends with its well-established unique market position, profitable market share growth, resilient financials, and healthy order book. It has also increased the active customer base and optimizing the secular shift in consumer behaviour to the online marketplace. The stock made a 52-week High and Low of USD 128.50 and USD 46.75, respectively.

Based on the long-term market opportunity, accelerated online trends, profitable growth, substantial liquidity, supported by the valuation conducted above, we have given a "SPECULATIVE BUY" stance on Overstock.com Inc at the closing market price of USD 66.00 (as of 4 August 2021), with lower double-digit upside potential based on 34.00x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).