After today’s share-price plunge, are you considering stocking up on Overstock (NASDAQ:OSTK) stock? I’m not even thinking about it. I’m definitely bearish on OSTK because, despite the management’s positive spin, Overstock’s recent press release points to a business in decline.
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For years, California-based Overstock was known for its online shopping platform where users could buy goods at a discount. Yet, when a well-known brick-and-mortar retail chain — Bed Bath & Beyond (OTC:BBBYQ) — started to circle the drain, Overstock jumped in and acquired the company.
It’s still too soon to determine whether that will turn out to be a brilliant move or a bust. In the meantime, however, we have a new batch of data points in hand – and overall, they don’t bode well for Overstock and its investors.
OSTK Stock Plummets Despite Management’s Confidence
Today was a memorable day for OSTK stockholders, but not in a good way. The stock tanked by 23.5% in response to the company’s third-quarter 2023 performance update. This isn’t exactly the same thing as a quarterly earnings report, but it does provide a quick snapshot of Overstock’s current situation.
Let’s rewind for a moment, though. Overstock completed its acquisition of Bed Bath & Beyond on June 28. Naturally, this was a transformational event in the history of Bed Bath & Beyond. How will it impact Overstock, though?
Again, it’s too early to make a final determination about that. At the time of the buyout, Overstock’s management touted the “merging the best of both companies into a single online shopping destination under the Bed Bath & Beyond name.”
Around a month later, Overstock released its second-quarter 2023 financial results. Suffice it to say, these results weren’t stellar. Overstock’s net revenue declined 20% year-over-year to $422 million, and the company’s active customers count slid 29% year-over-year to 4.6 million. Furthermore, Overstock devolved from net income of $7.147 million in the year-earlier quarter to a staggering $73.493 million net loss in Q2 of 2023.
These Numbers Don’t Support Optimism
Fast-forward to today, and Overstock’s management took the bold step of publishing a mid-quarter update for Q3. Jonathan Johnson, CEO of the new Bed Bath & Beyond, proudly proclaimed, “I remain optimistic about our future and the opportunity to gain market share under the Bed Bath & Beyond brand.”
At the same time, Overstock’s press release revealed that the company had “over 4.8 million” active customers as of September 4, 2023. Remember, Overstock’s 4.6 million active customers as of Q2 2023 represented a 29% year-over-year decline. Thus, “over 4.8 million” active customers isn’t much better than that.
What about Overstock/Bed Bath & Beyond’s revenue? The press release states that the company’s revenue indicates a “mid-teens percent decline year-over-year” and includes a “low-double-digit percent decline year-over-year since the U.S. launch.”
Additionally, the company disclosed that its average order value indicates a “high-teens percent decline year-over-year,” and this apparently includes a “low-20s percent decline year-over-year since the U.S. launch.” All in all, it’s difficult to justify Johnson’s optimism in light of these unfavorable data points.
Is OSTK Stock a Buy, According to Analysts?
On TipRanks, OSTK comes in as a Moderate Buy based on two Buys and four Hold ratings assigned by analysts in the past three months. The average Overstock price target is $42.50, implying 102.5% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell OSTK stock, the most profitable analyst covering the stock (on a one-year timeframe) is Tom Forte of D.A. Davidson, with an average return of 75.49% per rating and a 50% success rate. Click on the image below to learn more.
The Takeaway
Don’t be surprised if analysts are forced to lower their OSTK stock price targets in the coming days. They might end up downgrading the company, as well. Should contrarian investors consider buying the dip in the stock, though?
I personally wouldn’t. For one thing, the ultimate impact of the Bed Bath & Beyond buyout won’t be known for a while. Also, as we’ve discovered, some of Overstock’s data points don’t suggest that Overstock is on the right track. Consequently, I’m not even considering stocking up on OSTK stock now.
