Piper Sandler Sees More Upside Ahead For Overstock, Sending E-Commerce Stock Higher

Shares of Overstock.com Inc OSTK were on fire Monday after Piper Sandler analysts said the stock has further room to run despite a year-to-date gain of 1,200%. 

The Overstock Analyst: Peter Keith initiated coverage of Overstock with an Overweight rating and $140 price target.

The Overstock Takeaways: Overstock operates within the $300-billion U.S. home furnishings market and was a direct beneficiary of consumers spending more money on home-related items during the COVID-19 pandemic, Keith said in the initiation note. (See his track record here.)

The overall portion of online home furnishing sales rose from 23% to 32% of total industry sales in the second quarter, the analyst said.

Overstock is well-positioned to benefit from an "exceptionally strong" environment over the next five years, he said.

The bullish case for Overstock is also based on a recent leadership change and the following compelling initiatives, Keith said: 

  • Improving the mobile shopping experience.
  • Focusing on the core value-conscious consumer. 
  • More effective targeted pricing and promotions.

These initiatives should help Overstock show a compounded annual revenue growth rate of more than 30% over the next 30 months, while EBITDA margins should improve from negative 5% in 2019 to positive 4% in 2022, according to Piper Sandler. 

Overstock's exposure to the blockchain universe is "worth mentioning" and shouldn't be considered a distraction to the core business, but rather a "minor call option," the analyst said.

The two businesses are tZero, an alternative trading system for security tokens, and Medici Ventures, a portfolio of blockchain companies in which Overstock holds a minority stake.

Overstock is now an EBITDA profitable company, and a $140 price target based on two times EV/sales on 2021 estimates is "reasonable" compared to the peer group average of four times, Keith said. 

OSTK Price Action: Shares of Overstock were trading higher by 25.3% to $116.98 at the time of publication Monday. 

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Photo courtesy of Overstock. 

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Posted In: e-commercePeter KeithPiper SandlerCryptocurrencyPrice TargetInitiationMarketsAnalyst RatingsMoversTrading Ideas