Founded amidst the tech bubble of the late ‘90s and having gone public among the flotsam that followed the bubble’s burst in 2002, Overstock.com (NASDAQ: OSTK) is no stranger to Wall Street.
Up almost 70% year-to-date (YTD), this online retailer is on a hot streak, but should investors buy shares in Overstock right now?
The bull case for Overstock.com
Overstock has found itself in the limelight lately and this is mainly due to Bitcoin’s involvement with the company. The firm was one of the first major retailers to start accepting Bitcoin as payment for goods back in 2014. Despite being ahead of the curve, no profits were ever reported from the move, even to this day as cryptocurrencies surge in popularity.
However, it’s hard to ignore the fact that it was such an early mover in Bitcoin, of which it has invested at least $175 million. It is likely that the company still holds these investments, which would be worth billions of dollars in fiat currency today. CEO Jonathan Johnson has recently publicly backed the rise in cryptocurrencies, specifically citing Coinbase’s recent direct listing as a monumental moment for the industry.
But let’s not overlook Overstock’s core business. An investment in Overstock is an investment in e-commerce, and like rivals Amazon (NASDAQ: AMZN), Shopify (NYSE: SHOP), Etsy (NASDAQ: ETSY), and more, Overstock’s business boomed in light of the pandemic. This led to Overstock’s share price soaring 580% in 2020, with revenue jumping to more than $2.5 billion. Q1 2021 results were also strong, with the company reporting earnings per share (EPS) of $0.56 on revenue of $660 million, well above analyst estimates.
Overstock had a good quarter, with officials stating that it is “well-positioned to sustain this profitable path through 2021 and beyond.”
The bear case for Overstock.com
Like so many pandemic-boosted stocks right now, Overstock is trading at very expensive levels, with a P/E ratio of 67 times earnings. However, whether it can sustain its current growth is far from certain. Much of the recent interest from retail investors is derived from surging Bitcoin investments. As the cryptocurrency gains popularity, investors and traders want to get their hands on any company with even the slightest involvement. This has led to some wild price swings for Overstock.
What’s more, investors, who are banking on the company’s bullish Bitcoin sentiment, are currently ignoring its fundamentals as a retail business. And although business has been good so far, Overstock is not posting anywhere near the same numbers as its many competitors in the space. As the world begins to come down from the shock of COVID-19 and return to normal it is unlikely that Overstock will be able to maintain its growth in an increasingly cluttered space.
So, should I buy Overstock.com stock?
There is rather a lot of speculation priced into Overstock’s share price, much of which appears to be a misplaced hope of a new Bitcoin renaissance for the company. This has led to some volatile swings that make it an unsuitable investment for the less risk-averse investors among us. Meanwhile, there are plenty of safer and more promising alternatives out there which you can read about here.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Poppy likes companies that go the extra mile. Her favorite stock is Amazon because she is fond of its innovation, variety, and creative solutions to sustainability.