Is Overstock.com Now an Attractive Acquisition Target?

Overstock.com (NASDAQ: OSTK  ) might not have the same appeal as peers Amazon.com (NASDAQ: AMZN  ) or eBay (NASDAQ: EBAY  ) , but it does have strong growth and an attractive stock price. As a result, might the company be attractive to either of its peers, a brick-and-mortar retailer like Target (NYSE: TGT  ) or Best Buy (NYSE: BBY  )  -- and is it attractive for you?

Might the big boys show interest?
There's nothing fancy about Overstock: What you see is what you get.

With Overstock, the core investment value lies in its e-commerce platform, as it offers no other significant service or sells no other products that distinguish it against its peers.

But with Amazon and eBay, this is not the case.

Amazon has a business called AWS, which includes cloud infrastructure and app platforms that Evercore estimates will account for 13% of the company's total revenue by 2015... and with growth of more than 50% annually.

eBay has PayPal, which is nearly half of the company's total revenue. PayPal is growing significantly faster than eBay's Marketplace at 19% versus 11%, respectively, and is also responsible for eBay's operating margin of 21%.

Therefore, both eBay and Amazon have other growth engines aside from e-commerce alone. However, the appeal in Overstock might be in the price for which either could acquire market share or the added infrastructure.

Overstock has $1.3 billion in revenue over the last 12 months, and trades at a market cap of $450 million. Therefore, it trades at just 0.4 times sales, which is far cheaper than Amazon's 2.2 times sales ratio.

As a result, Amazon might give a long and hard look at acquiring Overstock, as it adds warehouses, manufacturing, distribution, and revenue for a cheap price.

As for eBay, with PayPal becoming ever important and so much of eBay's valuation tied to its margin, it would be hard to imagine the company adding more than $1 billion in revenue at an operating margin below 5%.

What about brick-and-mortar?
Conventional brick-and-mortar companies like Target, Wal-Mart, and even those like Best Buy were greatly behind the curve when it came to e-commerce.

These are companies that earn just a small percentage of their total sales through online channels, and the reason has been a lagging network for home deliveries, problems handling volume, and even some issues with inventory count between stores and e-commerce supplies.

In particular, Target and Best Buy come to mind as companies that could benefit from adding Overstock. Target's sales rose 15% last quarter, while Best Buy saw a whopping 25% boost in e-commerce during the holiday season.

For Target, the company's growth in e-commerce came in a quarter where comparable sales fell 0.6%. While we don't yet know Best Buy's comparable performance, we do know that shares of Best Buy fell 30% after reporting holiday numbers due to pricing pressure and weak traffic.

As a result, it appears that e-commerce could become a staple in each business, and Overstock, with similar growth, could help take that growth to a new level via experience, ecosystem improvements, and cost-reduction synergies.

What about you?
Essentially, if Overstock would make a good acquisition for both e-commerce peers and brick-and-mortar retailers, then it would have to make a good investment for you, right?

Well, we're talking about a company with growth similar to eBay's Marketplace, margins that are higher than Amazon's, and at an unprecedented 0.4 times sales. To put this in perspective, Wal-Mart trades at 0.5 times sales. So, not only is Overstock cheaper, but it is also growing significantly faster.

As a result, Overstock's weakness might present a very good investment opportunity. Sure, an acquisition could occur and that would be icing on the cake, but at this price, it does seem that Overstock could see large gains.

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