Overstock: There's More To This Stock Than Bitcoin

Overstock.com Inc OSTK gained notoriety as one of the first major retailers to accept bitcoin as payment. The e-commerce platform has been a longtime champion of the cryptocurrency, accepting bitcoin as early as January 2014.

Overstock initially transferred all crypto sales to dollars. The company now holds 50 percent of its crypto sales in bitcoin and other digital currencies. Overstock Board member Jonathan Johnson went as far to say: “We think that blockchain is going to be more revolutionary than the Internet.”

A new analyst note is predicting big upside from Overstock and recommending investors to buy shares — but not solely because of bitcoin.

The Analyst

Tom Forte of DA Davidson reiterated a Buy rating with an $85 price target.

The Thesis

After Overstock plummeted 30 percent over the past week, Forte continues to remain bullish due to a sum-of-the-parts valuation. (See Forte's track record here.) 

While Overstock’s current market cap sits at $1.13 billion, Forte said its home e-commerce business alone justifies a $2 billion valuation. His rationale: The price would be cheaper for a legacy brick-and-mortar retailer like Target Corporation TGT, TJX Companies Inc TJX or Costco Wholesale Corporation COST to purchase the business outright than to build their own platform.

“We believe acquiring the home e-commerce business of Overstock would provide a lot of strategic value to another company such as TJ Maxx or Costco,” the analyst said. 

“For T.J. Maxx, we believe it would enable the company to overcome what we consider to be a structural challenge — its low average selling prices make running a profitable e-commerce business difficult because shipping and handling costs erode its margins. For Costco, we believe Overstock could materially improve its e-commerce efforts,” he said.

Forte puts Overtstock’s e-commerce valuation at $58 per share. Add in Overstock’s blockchain investments through its company’s Medici Ventures subsidiary, and he arrives at a $85 valuation.

Price Action

Shares of Overstock fell 5 percent to $44.70.

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