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How Badly Undervalued is Overstock Right Now?

How Badly Undervalued is Overstock Right Now?

Overstock (NASDAQ:OSTK) made plenty of headway in 2020 thanks to its focus on home furniture and its completely online operation that made it both remarkably resistant to an increasingly attractive during the pandemic. While it's done very well for itself lately, that hasn't been as reflected in the current share price as some had hoped. The stock may be sufficiently undervalued to fuel rumors of a potential takeover, in fact, and that led to Overstock getting a 9% surge in recent trading. This surge has actually continued into this morning, though signs of profit-taking have emerged since.

A Big Year for Overstock, With More on the Way

Overstock had a fantastic run throughout 2020, and even into 2021, with share prices up over 800% of what they were just 12 months ago. Despite these massive gains, some believe that Overstock is actually undervalued; recently, analysts with Piper Sandler referred to Overstock.com as “the most mispriced stock” in the space. Piper Sandler's Peter Keith actually kept his “overweight” rating in place, complete with a price target of $140 per share, on the company, suggesting that Overstock features “tremendous potential reward” over the next year or two.

The biggest reason for Keith's move, however, isn't related to lawn furniture or bedroom sets. That business, though “solidly profitable”, is trading at about 0.8 times sales estimates for 2021.There's also the matter of Overstock's blockchain work; Keith suggests that said blockchain work, including the tZero blockchain trading platform, could be worth at least half a billion dollars by itself.

The real feather in Overstock's cap, Keith notes, is the recent contract between Overstock and the US government's General Services Administration (GSA). Under that contract, Overstock offers business-to-business connections for everyday items like office furniture and associated supplies. That contract is set to run for up to three years, reports note, and though it's been hit a little bit in the ongoing work-from-home rush that has even hit the federal government, it still represents a substantial contract. Keith further noted that the GSA diligence committee specifically cited Overstock's “best-in-class security” among potential applications, a point that Overstock will undoubtedly be able to put to good use in future marketing. That's especially valuable as many consumers move to online shopping in the face of an admittedly waning pandemic.

Analysts' Bulls Running

Meanwhile, based on our latest research, the broader analyst pool is frantically stepping in on the “buy” side, and that bullish sentiment has been in play for over two years, reports note. A year ago, the company had just two “buy” ratings to its name, but that was also the entire analyst sentiment. Starting in October, though, that's where things got interesting as the company surged to six “buy” ratings from just two. The six “buy” ratings held in place to this day, meaning that, in the space of about three months—between July and October 2020—analyst sentiment improved three-fold to the bullish.

The price target, meanwhile, has also improved substantially in recent months. Currently, the consensus target is $113.17, with a high of $140 and a low of $91. Three analysts have upgraded their price targets since late February, with DA Davidson increasing its target to $121 from $103, Wedbush upping its target from $98 to $126, and Needham & Company upgrading from $98 to $110. Given that Overstock's share price is currently $70.94 as of this writing, it's clear the analyst pool sees great potential herein.

Getting Its Due

While certainly, Overstock's fundamentals are looking sound right now, with great sales and low overhead in the very popular home improvement market, it's the rumors swirling around the company that are giving it some extra buzz. Keith's assessment of Overstock was welcome enough, but now, there are reports that Overstock could be on track for a takeover. From whom? It's not clear. But based on the price target data we've seen so far, someone may be planning such a move.

Overstock is trading, right now, at about $20 less than the lowest price target of the last year, currently held jointly by Credit Suisse and Bank of America at $91. The notion that Overstock is woefully undervalued isn't out of line at all, especially given its blockchain connections and its government contracts. It's one thing that Overstock is a big name—an online-only name—in home improvement in a pandemic and housing boom. This is an excellent example of being in the right place at the right time, and Overstock is capitalizing accordingly. Why the market hasn't responded to this notion is unclear, but given that Overstock's share price is nearly 10 times what it was this time last year, perhaps it simply already has.

Between the takeover possibility and the sheer nature of the company's holdings, further gains may yet follow. After all, Overstock isn't at its peak, but actually down off its highs. It's already seen over $100 per share, even over $120. Going back to that isn't all that unlikely.

Companies in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Overstock.com (OSTK)$80.47+2.8%N/A383.21Buy$108.00