Why Overstock.com Shares Skyrocketed

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 Overstock.com (NASDAQ: OSTK  ) were overachieving again today, climbing as much as 20% after the company posted a blockbuster earnings report.

So what: It was a strong report across the board as the online retailer delivered adjusted earnings per share of $0.15, up from $0.02 a year ago, and better than expectations of $0.12. Revenue, meanwhile, grew 22% to $293.2 million, well ahead of estimates at $277.2 million, as the main driver of the added revenue was a 21% increase in average order size. Gross margin was also up 170 basis points to 19.7% due to a shift in sales mix to higher-margin home and garden products and decreased warehousing costs.

Now what: Today's report was the company's sixth in a row to show positive EPS, a consistency it had previously been unable to achieve. With today's gain, shares are now up more than 400% in the past year, but are priced dearly at a P/E of 40. Online retail may be a fast-growing field, but industry leader Amazon.com has proven its willingness to bleed rivals dry time and again. I'm also concerned that nearly all the sales gains came from an increase in order value rather than new customers, as the latter is preferable and a better indicator of long-term growth. With analysts only expecting 8% revenue growth next year, today's jump may mark a good time to sell.

As anyone paying attention to the rise of online retail knows, the industry is in the midst of one of its biggest paradigm shifts ever. Get the scoop on a handful of companies poised to profit from these changes in the Motley Fool's special report: "3 Companies Ready to Rule Retail." Uncovering these top picks is free today; just click here to read more.



Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2544484, ~/Articles/ArticleHandler.aspx, 10/23/2014 2:35:29 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement