Overstock: Will Growth Of 2013 Repeat?

Overstock valuation 2013 logo

Overstock (NASDAQ:OSTK) has been one of the brightest stocks for 2013, witnessing a rally of 120% in stock price in the year. The year was a game changer for the company, as revenue growth and margins improved to which investors responded positively. One of the smaller companies in the e-commerce industry, as compared to its peers- Amazon and eBay, Overstock’s niche belongs in providing discounted products. We review Overstock performance, and it’s potential ahead as compared to its peers.

Overstock Financial Performance

The company reported double digit revenue growth numbers in all three quarters of 2013. Even the operating and profitability margins saw a jump as compared to 2012 margins, especially in the first two quarters. The company’s performance was majorly attributed to the high discounting available to customers and the club O program which is similar to Amazon Prime. It is interesting to note that the company can generate growth similar to that of Amazon, and still earn profits. Amazon on the other hand, is still struggling to reports profits, and utilizes most of its cash flows in research and development to boost growth. Overstock has more scope to grow in terms of its size, and capture the international market.

Revenue Growth comparison of Overstock and Amazon

Amazon and Overstock Revenue growth comparison

Based on Overstock's and Amazon’s SEC Filings

In Q3 2013, Overstock reported revenue of $301 million with a net income of $3.53 million and diluted earnings per share of $ 0.14. The growth has been healthy for most of 2013, with cost control and margin improvements. The balance sheet also shows a healthy picture with zero long term debt and $13.79 million cash from operations.

Overstock Earnings history

Overstock surprised many with positive earnings surprises in 2013. In the first quarter of 2013, the company beat analyst’s estimates by a whopping 138%, followed by a 25% beat in the second quarter. Management credited the performance to the sales of high margin items, along with efficient cost control. However the company failed to meet the third quarter estimates. Expectations are higher for the fourth quarter at Zack’s earnings estimates of $0.52 a diluted share, a 40% jump in earnings over the same quarter last year, which will reflect the sales of the holiday quarter.

Zack’s Earnings surprise for Overstock

Quarter ending 9/2013 6/2013 3/2013
Reported Earnings 0.14 0.15 0.31
Estimated Earnings 0.15 0.12 0.13
Difference -0.01 0.03 0.18
Surprise -6.67% 25.50% 138.46%

Overstock Valuation against Amazon, eBay

In the first look, Overstock seems to be cheap with a Price to sales ratio as low as 0.59 times, and a price to earnings ratio of 30.17 times. Moreover, in internet based companies, growth is often preferred over earnings. With very low the price to sales ratio, Overstock surely has a room for upside as long as it maintains growth in revenues and margins.

Overstock Relative Valuation

P/S ratio (LTM) P/E ratio (LTM) P/B ratio (LTM)
Overstock (NASDAQ:OSTK) 0.59 30.17 15.15
Amazon (NASDAQ:AMZN) 2.6 1421.32 20.09
eBay (NASDAQ:EBAY) 4.58 25.69 3.12

However with the stock registering 110% growth in last one year, compensates for the growth potential. The company faces direct competition from the ecommerce giant –Amazon, which is at a great advantage owing to its high scale of operations. The valuation metrics looks attractive, however, it is too early to take a call whether the turnaround of fortunes is here to stay. We are adding it to our positive watch list while we wait for the holiday quarter earnings.

To see Overstock’s latest stock price movement, click here (NASDAQ:OSTK)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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