Please ensure Javascript is enabled for purposes of website accessibility

Why Overstock.com Stock Rallied as Much as 12.5% This Morning

By Reuben Gregg Brewer – Oct 1, 2020 at 12:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The online retailer's rise today is just par for the course so far in 2020.

What happened

Shares of online retailer Overstock.com (OSTK -3.72%) rallied as much as 12.5% as the trading day began Thursday. Although the stock had pulled back some of those gains by around noon EDT today, it was still up a hefty 10%. But compared with the over 1,000% gain the stock has witnessed so far in 2020, even a 10% advance seems somewhat tiny. 

So what

The big story with Overstock.com can be found in the last three letters of its name. With COVID-19 leading to the forced closure of nonessential businesses and social-distancing efforts, more and more shopping is being done online. That's been a huge boon for Overstock.com, which saw revenue increase more than 100% year over year in the second quarter. Earnings improved from a loss of $0.69 per share in the second quarter of 2019 to a profit of $0.85 in the same period of 2020. No wonder investors have been so upbeat here.  

A woman pointing to a lit chalk lightbulb above her head

Image source: Getty Images

Cheering that huge run have been Wall Street analysts, as you might expect. The price bump today was likely driven by Wedbush's Ygal Arounian, who reiterated an outperform rating and placed Overstock.com on the company's Best Ideas list. Arounian has a $92 price target (Overstock.com currently trades at around $80) and expects the stock's massive 2020 rally to keep going.   

Now what

There's a huge amount of good news priced into any stock that goes up 1,000% in roughly nine months. Conservative long-term investors should probably be cautious about Wall Street's enthusiasm for Overstock.com. The business is definitely benefiting from the shift toward online shopping, but just how much better that can get isn't clear, and the trend could change quickly should a COVID-19 vaccine arrive.

It's also worth noting that Overstock.com itself has taken this opportunity to sell 1.7 million shares, suggesting that the valuation is, perhaps, stretched at current levels. Wedbush, for reference, helped Overstock.com with that August stock offering.  

Reuben Gregg Brewer 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.

Stocks Mentioned

Overstock.com Stock Quote
Overstock.com
OSTK
$25.60 (-3.72%) $0.99

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.