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At a market cap of $160 million, Overstock trades for just 15% of sales. But if you subtract the company's relatively large net cash position from the market cap, Overstock trades for just 10% of sales! Yet the company operates in an industry (online retail) that is expected to continue to grow.
And grow this company has; sales have increased from $92 million in 2002 to over $1 billion today. Even more impressively, Overstock has managed to do this while barely growing assets! Assets are lower now than they were eight years ago! The firm has managed to do this by migrating towards a model whereby Overstock sells the goods to consumers, but the orders are fulfilled by "partners". As such, Overstock doesn't need a ton of warehouses and employees and doesn't even touch the inventory (save for returns) for goods that are sold via this method.
Recently, however, revenue has stagnated. Part of this (though probably much less than 10%) can be blamed on a Google initiative that penalized Overstock's search results. This issue was corrected last year, however, and sales are still stagnant.
But of course the major problem is that the company has hard a time sustaining profits. High litigation expenses hurt results last year, but as those have come down, profits have increased. Furthermore, the company recently rationalized its work force, which helped swing its most recent quarter from a loss last year to a profit. Though still slightly negative, revenue trends have picked up significantly, with the CEO proclaiming on the company's latest conference call that "I think that you will see revenue accelerating this quarter."
But profits aren't the only problem. Overstock has had to undergo numerous financial restatements (described here), and is still involved in a great deal of litigation. (It took me a long time to read through the company's legal issues, and not because I read slowly!)
The company's CEO (who goes by the title "Doctor" at company presentations as a result of his PhD in philosophy, from what I gather) seems rather eccentric, which may be getting him and/or the company into hot water at times. There is a special section of Overstocks' investor website where the doctor speaks out, acknowledging that he is often in the news due to his attempts to "curtail injustice". There, he details his crusades against major brokerage houses, a hedge fund, and naked short-sellers (among other things).
Obviously, some heavy hitters in the value investing community believe in this company. Do you?
For more on this company, check out the bull case made by portfolio manager Glenn Surowiec on Great Investors TV.
Interested in another opinion on Overstock, or any other stock for that matter? One of this site's sponsors has offered our readers a free analysis of a stock of their choosing here.
Disclosure: No position
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This is exactly my thesis of buying into OSTK.
One point that i would like to add is that CEO owns 30 % of company stock and did exaclt what a responsible owner would do, paid off all the debt.
Its a debt free company.
A Debt free company owned by owner , Prem Watsa , Francis Chou selling at 1/3 of the price at which Francis Chou bought and which has grown as fast as amazon on percentage basis. Value investing doesnt get better than this.
For this very resoan when Francis Chou started his small equity fund in US last year. He made OSTK single biggest position in the protfolio (11 %).