Overstock.com
Overstock.com (OSTK): Unprofitable internet retailer. The company’s business strategy is to offer the absolute lowest prices. It intends to make a profit on very large volume, by growing sales fast enough to allow the company to turn a profit and keep gross margins down. Overstock has been cash flow negative for most of its history. At present, its balance sheet is solid. It has even used some cash to buy back shares. Solvency and eventual profitability are entirely dependent upon strong revenue growth. If Overstock fails to grow sales quickly, it will not be viable as a going concern. If, however, Overstock can grow sales quickly, it will likely earn a very high return on capital for a long time to come.
The company has a market cap of about $500 million. On January 17th, 2006, I argued Overstock was worth at least $1.5 billion. I consider myself a rationalist value investor rather than a contrarian value investor. I look for those companies selling at the greatest discount to their intrinsic value and buy them, regardless of investor sentiment. Therefore, I don’t normally discuss the optimism or pessimism surrounding a particular stock. However, I would be remiss if I did not note the simple fact that I have never witnessed such pervasive and virulent pessimism as that which is now directed at this company and its unorthodox president. A search for Overstock in Google’s blog search will provide you with a sample. I would include these pessimistic pieces; however, I did not find any of real value. If you know of any well – reasoned negative commentary/analysis on Overstock, please let me know by sending an email to geoff@gannononinvesting.com. I will be happy to add negative commentary that is of the same caliber as the following links.
Here are four worthwhile pieces on Overstock:
The Motley Fool’s January 28, 2005 article: “Overstock’s Underappreciated”
The Motley Fool’s April 11th, 2005 article: “Overstock’s Secret Weapon”
Shai Dardashti’s views on Overstock expressed at Vinvesting.com
Shai Dardashti’s personal thoughts on Dr. Patrick Byrne, President of Overstock.com