Why Overstock.com, Inc. Shares Were Falling Today

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 getting restocked today, dropping as much as 10% following a disappointing earnings report.

So what: The online retailer missed the mark on both top and bottom lines in its first-quarter report. Sales grew 9% to $341.2 million, short of estimates at $345 million, while earnings fell to $0.16 from $0.32 a year, missing the Wall Street consensus at $0.25. Sales and marketing expenses grew disproportionately, up 25% in the quarter, and technology expenses caused net income to fall in the quarter. 

Now what: After a terrible holiday season, this report was not what investors had hoped for, and the stock is now down nearly 50% in the new year. Up against competition like Amazon.com, a behemoth that operates on a razor-thin margin, it's hard to see Overstock ever gaining significant leverage, as its gross margin is notably lower than that of its larger rival. Considering its performance over the last two quarters and the fact that profits and revenue are expected to fall next year, I see little reason to invest at this point. 

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