Why Overstock.com Shares Spiked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of online retail marketplace Overstock.com (NASDAQ: OSTK  ) advanced as much as 15% after reporting its fourth-quarter and full-year earnings results.

So what: For the quarter, Overstock.com reported a 9% increase in revenue to $342 million as it reversed a year-ago loss to earn $0.37 per share. Relative to the lone analyst estimate, it fell slightly short of revenue figures at $343.3 million but crushed the $0.27 EPS forecast. Gross margin for the quarter was the biggest help, improving 170 basis points to 17.9% as a better product mix and lower warehousing costs ate less into its bottom line as in year's past.

Now what: With small-cap companies, you basically have to take earnings pops and drops like these with a grain of salt relative to the one or two analysts covering the stock. Yes, Overstock.com surpassed the lone estimate by $0.10, but Overstock has also been trying to execute one of the longest turnarounds in history. It's like watching a big rig try to turn around in a space the size of an alley. Overstock.com has done a better job of managing its inventory space to reduce warehousing costs, a definite positive, but the growth in revenue came at the cost of a decrease in overall customers. I'd still consider Overstock.com to be a very unreliable long-term investment and won't be touching it here.

Craving more input? Start by adding Overstock.com to your free and personalized Watchlist so you can keep up on the latest news with the company.

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