Overstock.com, Inc. (OSTK): This High-Flyer is Still Far from Reaching its Worth

Expecting Continued Gains

Most don’t realize that Overstock.com, Inc. (NASDAQ:OSTK) is a large company, with revenue of more than $1.1 billion. The company is also seeing growth, and that growth is equal to or greater than its larger competitors. Over the last year the company has made major changes, yet despite these obvious improvements, the stock still has a short ratio of more than 40.0! As a result, like most highly shorted stocks, the company’s valuation is below that of its competitors and much of its large gains were due to shorts covering.

With that said, there is still major room for improvements. If the company can continue to improve its margins and produce slight growth, then I see no reason for why it’s not worth the same 2.00 times sales that Amazon carries on its valuation.

The simple truth is that Overstock.com, Inc. (NASDAQ:OSTK) underperformed its fundamentals from 2009-2012, and now the stock is correcting itself. This fact is what’s great about being a fundamental investor, because if you invest in value then sooner or later the stock is bound to correct with strong fundamental performance. Overstock.com is the perfect example of a stock that underperformed its peers, was much larger than its valuation, and is now racing to correct to its true worth. Thankfully for new investors, it is still far from reaching its worth.

Conclusion

It’s quite easy to get wrapped up in the performance that earnings create. It’s not uncommon that a stock trends in the incorrect direction following earnings, but in the case of Overstock.com, Inc. (NASDAQ:OSTK), that is simply not the case. Overstock.com is the exception, a company with earnings that changes your investment thesis due to fundamentals, not because of performance. In my book, Taking Charge With Value Investing (McGraw-Hill, 2013), I discuss earnings in detail, explaining different situations when it is good to buy and sell. Overstock.com is a clear example of when to buy, as its earnings were incredible and its valuation is still cheap.

The article This High-Flyer is Still Far from Reaching its Worth originally appeared on Fool.com and is written by Brian Nichols.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.