What happened

Shares of Overstock (NASDAQ:OSTK) rose once again on Tuesday, after rival Wayfair (NYSE:W) reported impressive first-quarter 2020 earnings. At the close of trading, Overstock shares were up 8.5%.

Investors have piled into these e-commerce furniture retailers in recent weeks. The following chart stretches credulity by displaying the stock performance of Wayfair and Overstock just since March 18, a mere seven weeks ago.

OSTK Chart

OSTK data by YCharts.

So what

For Wayfair, Q1 highlights include growing quarterly net revenue by 20% to $2.3 billion, and increasing active customers by 29% to 21.1 million. The customer growth in particular demonstrates an increasing consumer willingness to purchase furniture online. This bodes well for Wayfair, and investors rewarded that stock as well today.

For comparison, in Overstocks first quarter, net revenue fell by 4% to $352 million, and new customers grew 9%. But subsequent to Q1, Overstock's April retail sales surged a whopping 120% year over year. 

What does Wayfair's have to do with Overstock exactly? By comparing its valuation to that of Wayfair, one could make the argument that Overstock is still a value stock, even after big gains in recent weeks. Using the price-to-sales ratio, Wayfair currently trades around 1.7 times trailing sales. Overstock, on the other hand, trades around 0.4 times trailing sales.

Not only that, but Wayfair has a net-debt position compared to a net-cash position for Overstock, further underscoring the undervalued argument for Overstock. For these reasons, it seems investors are willing to keep betting shares of Overstock have further upside.

A hand draws a chart going up.

Image source: Getty Images.

Now what

In my opinion, buying a stock simply because shares look cheaper than a competitor isn't a consistent method to beat the market. Additionally, excitement over Overstock's April sales figures may be overdone. Consider the surge in furniture e-commerce to be temporary until it's shown that it can continue after the coronavirus is under control. 

Long-term Overstock investors certainly should include valuation in their considerations. But it should only be a part of a well-rounded investment thesis.