Analyst Stays Bullish On Overstock's tZERO Coin Offering Despite Regulatory Risk

Overstock.com Inc OSTK shares are down more than 8 percent in the past week after the SEC announced it's investigating the initial coin offering of Overstock subsidiary tZero. While investors are clearly concerned about the implications of the investigation, at least one Wall Street analyst isn’t worried about Overstock.

The Analyst

D.A. Davidson analyst Tom Forte reiterated his Buy rating and $110 price target for Overstock.

The Thesis

Overstock appears to be putting for a good faith effort to present an ICO that will satisfy all of the SEC’s concerns, Forte said. However, this is no guarantee the tZERO ICO will go smoothly.

“Should the SEC decide, for lack of a better term, to rein in or restrict with new regulations the ICO process, it could not only have a negative impact on its tZERO ICO but also tZERO’s future ability to assist other companies’ efforts for their own ICOs and, even, its planned alternative trading system for tokens,” Forte said in a Monday note.

Forte said the delay in the tZERO ICO from February to May is a reflection of the regulatory landscape, not of lackluster demand for the coins. Forte expects Overstock will ultimately be able to raise between $250 million and $300 million from the ICO.

Forte said tZERO ICO status is the most likely reason for the delay in Overstock’s Q4 earnings report, but he also said there’s an outside chance the delay is due to a potential sale of Overstock’s e-commerce business.

Price Action

Despite Forte’s optimism, the market remains skeptical of the SEC investigation. Overstock shares dropped another 2 percent early Monday morning, but started to recover. At time of publication, the stock was trading around $59.95.

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