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1-Star Stocks Poised to Plunge: Overstock?

Based on the aggregated intelligence of 160,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online retailer Overstock.com (Nasdaq: OSTK  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Overstock's business and see what CAPS investors are saying about the stock right now.

Overstock facts

Headquarters (Founded)

Salt Lake City, Utah (1997)

Market Cap

$502.8 million

Industry

Internet retail

Trailing-12-Month Revenue

$955.4 million

Management

CEO Dr. Patrick Byrne (since October 1999)
CFO Stephen Chesnut (since February 2010)

Return on Capital (Average, Past 3 Years)

(4.9%)

Price-to-Earnings Ratio

68.4

3-Month Return

92%

Competitors

Amazon.com (Nasdaq: AMZN  )
eBay (Nasdaq: EBAY  )
Wal-Mart

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 71% of the 1,104 members who have rated Overstock believe the stock will underperform the S&P 500 going forward. These bears include All-Star edwjm, who is ranked in the top 1% of our community, and jed71.

Just last month, edwjm wrote that the rally in Overstock seemed overdone: "The recent run-up in Overstock... is excessive. At the current price ... the p/e is over 58 and there is no dividend."

In a pitch from the same day, jed71 echoes that bearishness. Here's an excerpt:

As you can imagine, they sport some pretty horrific numbers. Having just come off its first profitable year, [Overstock] sports a P/E of 61, a debt to equity of more than 5, and a price to book of nearly 40. Cash flow performance has been spotty at best...

They sell things that other stores have not been able to rid themselves of. What makes [Overstock] think they can do any better? From the short time I spent surfing their website, I saw quite a bit of junk; discontinued merchandise, old and outdated products, items of which most consumers would thumb their noses at. Most items seemed to be either overpriced or well past their useful life.

What do you think about Overstock, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Amazon and eBay are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a bull call spread position on eBay. Wal-Mart is a choice of Inside Value. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (4) | Recommend This Article (4)

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.

  • Report this Comment On May 10, 2010, at 11:08 AM, EdFromOhio wrote:

    Overstock.com lost sight of what made them popular - good prices. Now they have an overpriced flea market. I can do better on several other sites, thank you very much.

  • Report this Comment On May 10, 2010, at 12:50 PM, Patricia013 wrote:

    I don't know who is responsible for Overstock keeping so tight lipped about its auction site. At this point in time a bit of advertising would have disgusted Ebay sellers flocking there! Most people I know don't even know that Overstock runs auctions...it seems to be THAT big a secret. The site has plenty of room to grow....it just doesn't take advantage of the opportunities.

  • Report this Comment On May 10, 2010, at 7:51 PM, lebennington wrote:

    .....lost sight of what made them popular - good prices. Now they have an overpriced flea market.

    Oh, I'm sorry EdFromOhio, for a minute I thought you could be talking about Ebay! John Donahoe does strive to be like Overstock and Amazon, doesn't he?

  • Report this Comment On May 12, 2010, at 11:33 AM, guiron wrote:

    The business model is an eBay also-ran, not best of breed by any means. FWIW, Patricia013, I've seen a lot of advertising, but I've never seen them produce a decent balance sheet or much return for their investors. Some people like shopping there, but I've never seen a decent growth story in their business model. It's sort of like an auction site, but it's really not, because there's just not enough traffic, so it's mostly discounted merchandise through resellers at more or less a fixed price - to be fair eBay is becoming more and more like that as well.

    The stock gets people emotional, like SIRI, so it's difficult to short it. I see it get run up with short covering constantly, as well as irrational exuberance by some die-hard stockholders. I'd say this is a decent short if you have a long enough timeline and put in your stops right away, but even in CAPS it's caused me a lot of pain red-thumbing it.

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Related Tickers

11/26/2014 3:59 PM
OSTK $25.21 Up +0.20 +0.80%
Overstock.com CAPS Rating: *
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