Overstock.Com Cut In Half After Big Rally

Overstock.Com Inc. (OSTK) has benefited greatly from the COVID-19 pandemic in 2020, which has accelerated the shift from brick and mortar retail sales into e-commerce. The company also owns a small blockchain subsidiary called tZERO, which is a FINRA member broker-dealer offering free trading for registered digital securities. This non-retail exposure has greatly amplified volatility in recent months, as evidenced by a 3-week 50% decline off August’s all-time high at 128.50.

Overstock Growing Core Businesses

Overstock is growing core retail revenue by applying self-help initiatives across mobile, pricing, marketing, and customer service. User engagement is also increasing through a new business-to-business partnership with the General Services Administration (GSA), which is the U.S. government’s intermediary for buying and selling with the private sector. Strong revenue growth going forward should support tighter expense control while driving higher margins.

Needham analyst Rick Patel initiated Overstock with a ‘Buy’ rating and $96 target on Monday, noting the company is “benefiting from external and internal factors that are driving acceleration in revenue growth and market share gains. The ongoing secular share shift towards digital commerce has accelerated this year, and the home category is benefiting from consumer nesting; we anticipate this will continue.”

Wall Street And Technical Outlook

Overstock.com is covered by just five analysts, with a consensus ‘Strong Buy’ rating based upon 4 ‘Buy’ and 1 ‘Hold’ recommendation. No analysts are recommending that shareholders sell their positions even though the stock has been cut in half since August. Price targets currently range from a low of $78 to a street-high $140 while it’s trading almost $9 below the low target on Monday morning. This placement strongly indicates that analyst ratings have missed the mark.

The stock is situated a few points below the 50-day moving average despite high-percentage losses in recent weeks, illustrating the impact of a blistering 500%+ rally off the March low at 2.53. Both weekly and monthly relative strength indicators have now crossed into sell cycles, telling sidelined investors to keep their powder dry for now. This is especially true given the stock’s long-term history, which features similar parabolic impulses and crushing reversals in 2004 and 2018.

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