Since peaking at an all-time high of $122.32 in mid-August, shares of Overstock (OSTK) have retreated by more than 40%. However, it is worth remembering that even after the significant pullback, shares are up by an incredible 908% year-to-date, as the online retailer has made the most of the rise of e-commerce during the pandemic.
Heading into this week’s earnings (Thursday, October 29), Needham analyst Rick Patel believes the signs point to another robust display in Q3.
Patel expects a “continuation of strong sales growth,” and further said, “While we believe the market already anticipates a q/q deceleration vs an exceptional 2Q, our recent survey work gives us optimism that OSTK should benefit from strong demand through 2H20 regardless of a potential Covid-19 vaccine... In our view, the stock pullback from its peak in mid-August partly reflects profit taking, but we continue to believe risk/reward favors upside as fundamentals should remain strong while valuation (EV/Sales of 1.2x vs ~3x growth peers, ex-outliers) is also attractive.”
According to Needham’s recent survey, the trends are pointing in favor of the home category and, specifically, Overstock.
Asked in which category most consumers were planning to spend the most on this fall, (sans grocery and staples), at 35%, the home category received the largest share of the vote. Although the figure is less than the 42.5% earned in the firm’s July survey, Patel believes “overall demand should remain strong in 2H20.”
Additionally, the home category came first on consumers’ lists when asked in which category they’d shop the most if a vaccine was found. At 29% of the vote, the segment came ahead of apparel for going out (23.7%), and way in front of the 15.8% third placed active/athletic wear received.
Overstock is exhibiting some stickiness, too. 25% of consumers shopped at Overstock before the pandemic and continue to do so, 10% came on board in Q2 and have subsequently made more purchases, while another 4% first shopped in Q3 “with plans to repeat.”
“We believe this points to a growing base of new customers,” Patel summarized, “With a significant portion planning to repeat.”
Overall, there’s no change to Patel’s rating which stays a Buy, although the price target is nudged from $96 to $98 and suggests possible upside of 38% from current levels. (To watch Patel’s track record, click here)
There’s similar sentiment across the Street. Based on 5 Buys and 1 Hold, the stock has a Strong Buy consensus rating. The average price target clocks in at $100.33 and implies shares will add another 41% in the year ahead. (See Overstock stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.