Shares of online retailer Overstock.com (OSTK 7.12%) dropped a quick 11.5% on Feb. 24. The big news was earnings, which were actually higher year over year. But the real story may be higher up on the income statement.
At first blush, Overstock.com knocked it out of the park in the final quarter of 2020. Revenues were up 84% year over year. Earnings rose to $0.26 per share, a vast improvement over the loss of $0.73 per share in the final stanza of 2019. The company beat analyst expectations on both the top and bottom lines as well, though those figures include data from only three analysts. Still, it is hard to complain too much about the company's results.
That is, until you look at the revenue trend. In the second quarter, after the coronavirus had started to spread more widely and online shopping increased accordingly, Overstock.com had a year-over-year revenue increase of 109%. In the third quarter the figure was 111%. So the fourth quarter's 84% increase is actually a material sequential quarterly decline in the revenue growth rate. It is quite possible that the boost from the coronavirus is nearing an end. In fact, the company's comments about its 2021 goals started with the word sustainable, which is an interesting, perhaps less-than-confidence-inspiring, choice given the drop in the revenue growth rate between the third and fourth quarters of 2020.
Overstock.com's shares rose 580% in 2020, but were higher by more than 1,500% at one point during the year, an astounding figure. Including today's decline, the stock is up around 65% so far in 2021, but was higher by as much as 120% at one point. There is a great deal of good news priced into the stock, which suggests investors are expecting perfection. That's going to be hard to live up to if the shift toward online shopping abates as the world learns to deal with the coronavirus. And the wild ups and downs in the share price suggest investor support here is...mercurial at best. Caution is probably in order here for more aggressive long-term investors. Conservative types, meanwhile, would probably be better off watching this roller-coaster ride from the sidelines.