A package moves along a conveyor belt at the Overstock.com Inc. fulfillment center in Salt Lake City, Utah
Daniel Carde/Bloomberg
The pandemic was a boon for online home-furnishings retailer Overstock.com, and its shares have soared well over 800% in the latest 12 months. Yet Piper Sandler argues that even with that rally, it’s the “most mispriced stock” in the space, especially if Overstock becomes an acquisition target.
Analyst Peter Keith reiterated an Overweight rating and $140 price target on Overstock (ticker: OSTK) stock Friday, writing that he sees “tremendous” potential reward for investors over a one- to two-year time frame.
There’s a lot to like about its “solidly profitable” business, which trades at just 0.8 times his 2021 sales estimate—cheaply enough that investors are basically getting its blockchain operations and its contract with the federal government’s General Services Administration (GSA) for free, he argues. That’s a serious disconnect, as he thinks Overstock’s tZero blockchain trading platform could be worth half a billion dollars or more.
Keith’s main focus is the GSA contract, however: Awarded in June 2020, it means Overstock provides business-to-business e-commerce capabilities for things such as office furniture and supplies for federal agencies for up to three years. He notes that the contract was originally for five federal agencies that would spend $6 billion in annual purchases, but it’s been expanded to encompass eight agencies, implying potentially higher sales. While the platform has been slower to take off than the company expected, he believes much of this is due to ongoing work-from-home dynamics.
He also thinks it’s worth noting that Overstock won the contract along with two other, much-larger providers— Amazon.com (AMZN) and Thermo Fisher Scientific (TMO). Keith believes Overstock was selected because of the products offered, competitive pricing, and its security, reporting, and analytics capabilities. “Overstock was told by the GSA diligence committee that it had best-in-class security among the applicant pool. Overstock also has superior reporting analytics capabilities to provide reporting down to the micro level,” he notes.
Ultimately, Keith doesn’t just think that the government contract is a great sales opportunity, but it also “validates Overstock as a strong e-commerce platform and makes Overstock an acquisition candidate for other large box retailers that presumably weren’t selected as GSA contract finalists.”
Overstock stock is up 4.6% to $68.78 in recent trading. The shares are more than 40% year to date.
Write to Teresa Rivas at [email protected]
