Shares of Overstock (OSTK) are getting hammered today, down nearly 12%, after the company released its third-quarter earnings report. Has the decline of OSTK stock created a buying opportunity? Maxim analyst Allen Klee says yes.
Klee reiterates a Buy rating on OSTK with a price target of $75, which implies an upside of 318% from current levels. (To watch Klee’s track record, click here)
Let’s delve deeper into numbers. 3Q18 revenue of $440.6 million topped Klee’s estimate of $436.8 million and was up 4% y/y. Gross margins in the quarter of 19.7% came in above Klee’s estimate of 19.5% and inline with 3Q17 of 19.7%. Overall, the company posted an adjusted net loss of $39.8, versus Klee’s estimate for a loss of $16.9 million, and an adjusted loss per share of ($1.26), versus Klee’s estimate of ($0.58).
Klee commented, “We attribute the top line growth to more aggressive marketing spend in the first half of the quarter, coupled with a 6% increase in average order size y/y […] Gross margin was benefited by a mix shift into home and garden products (which generally carry a higher margin), partially offset by increased promotional activities to drive sales […] We note that the higher-than-expected loss was largely due to increased staffing to ramp its blockchain businesses and a month and a half of aggressive marketing spend, but still represents a substantial improvement over the prior quarter’s non-GAAP loss per share of ($2.17).”
“Better spending discipline resulted in a lower loss in 3Q18 compared to 1H18 and we remain positive on opportunities to improve profitability in Retail, and/ or a potential sale, in addition to the company’s blockchain investments […] We expect a full quarter of targeted, rational marketing spend in 4Q18 to result in increased efficiencies, and forecast S&M expense to be 10.4% of revenue during 4Q18. We note that through OSTK’s high levels of marketing spend during 1H18, it has been able to experiment and observe favorable marketing tactics that it can leverage to drive efficiencies,” the analyst added.
Aside from this rating, OSTK has only received one other analyst rating in the last three months. D.A. Davidson’s Tom Forte has issued a bullish Buy rating on the stock with a relatively $$112 price target. (See OSTK’s price targets and analyst ratings on TipRanks)