Is Overstock overvalued?
Posted
Oct 22 2007, 01:36 PM
by
Kim Peterson
Overstock.com is getting lots of market love today, with shares up 7% after solid earnings news on Friday. The company's quarterly loss of 20 cents a share was way better than the 39 cents a share analysts had been expecting.
Shares have seen a huge runup over the past year, going from $13.50 last November to about $34 today. I don't think Overstock has proven itself enough to justify such a high share price. The company has a history of bad decisions and other drama, and investors should wait before making the plunge.
Piper Jaffray upgraded the stock today to Market Perform from Underperform and raised its target from $16 to $31. Other analysts have not been so kind; Stifel Nicolaus lowered its rating on the company last week to Sell from Hold, saying the shares are fully valued. No analyst has a "buy" on Overstock.
Overstock sells excess inventory online. I've never had the patience to sift through the site's pages, looking for things that couldn't sell in other stores. And the prices aren't much less than what you can find elsewhere.
Overstock had some problems in the quarter. The number of new customers fell 10% from the year-ago quarter to 484,000. And the number of unique customers dropped 2% to 1.1 million. On the other hand, the average order size rose 15% to $118 and Overstock's gross profit per transaction rose 32% to nearly $20.
The fourth quarter is the most important of the year for Overstock, and this one seems even more crucial. By early next year we should have a better sense of whether this company's turnaround is permanent.