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Why Did Shares Fall 27% Last Month?

By Anders Bylund – Nov 10, 2018 at 2:12PM

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The market moves in mysterious ways sometimes.

What happened

Shares of (OSTK -0.04%) fell 27.4% lower in October of 2018, according to data from S&P Global Market Intelligence. Most of the drop took place in a period of four trading days at the middle of the month, but the reasons for the online retailer's decline were never clear.

So what

Overstock did have news to share last month, but mostly of a positive ilk.

  • On Oct. 16, the company announced the results of its inaugural Customer Day, a sales event earlier that week that resulted in the strongest single day of non-holiday sales in Overstock's history.
  • The same day, blockchain technologies subsidiary tZERO issued a line of preferred security tokens as a step toward building a complete trading platform for various stocks and other securities. The idea here is to tie transactions such as stock trades to the secure tracking methods of a blockchain, protecting the trading system against fraud and errors. These tokens will stay in custody for three months before entering the public markets in January.
  • Three days later, Overstock filled three positions in its executive team, including a return of former co-president Dave Nielsen as the chief sourcing and operations officer. The appointments put more distance between Overstock CEO Patrick Byrne and the company's day-to-day e-commerce operations, which might let Byrne put more work into the blockchain business or even plan a run for POTUS in 2020 on the libertarian ticket. Byrne currently estimates that the chances of his running for office stop at a mere 20%.
  • Finally, on Oct. 22, another blockchain-focused portion of Overstock invested $6 million in a crypto-based social network named Minds. Byrne also joined the network's board of directors, giving him and Overstock some say on how Minds moves forward from here.
  • Overstock's share prices often move in conjunction with big swings in popular cryptocurrencies. Over the period outlined here, leading crypto token Bitcoin saw its prices move 4.5% lower while Ethereum tokens fell 3.5%.

None of these events provide much of an explanation for Overstock's 22% plunge over the same period. In fact, some of the potential causes look more like positive trigger events -- but the stock marched inexorably downward anyhow.

Man in a white shirt stands with his back to the viewer, examining a large poster showing simple blockchain concepts.

Image source: Getty Images.

Now what

Overstock does have a history of trading controversy. Once upon a time, in a series of articles posted right here at The Motley Fool, Byrne accused naked short-sellers of manipulating Overstock's share prices for their own quick-fire gains. Some 52% of the company's public float is sold short these days, arguably leaving the stock open to exactly that kind of manipulation by deep-pocketed traders with ulterior motives -- but even that theory falls down on the fact that Overstock's short interest rose at the end of October. If short-sellers were setting the stock up for a quick and profitable exit, the shorting ratio should have been falling instead.

So I can't put my finger on the driving forces behind Overstock's big drop last month. It's a volatile stock with high short-seller interest, negative earnings, and links to the equally rocky cryptocurrency markets, so wild price swings are not rare for this stock. This particular move was simply less transparent than most.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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