by Zacks Equity Research

October 31, 2012 |

Shares of online retailer Overstock.com, Inc. (OSTK - Free Report) have neared its 52-week high after this Zacks #1 Rank (Strong Buy) delivering solid third quarter results, which included a triple digit earnings surprise.

Strong Q3

On October 25, 2012, Overstock.com reported third quarter 2012 earnings per share of 11 cents, crushing the Zacks Consensus Estimate calling for a 10-cent loss. Net sales increased 6.5% to $255.4 million year over year. The average order size increased during the period, but this was offset by a lower number of orders.

Gross margin improved 220 basis points (bps) from the year-ago quarter to 18.2% due to a product mix shift. Operating margin was 0.7% compared with a loss of 3.3% in the year-ago quarter. Operating expenses fell 3.3% year over year to $44.8 million.

Earnings Estimate Revision

Earnings estimates remain well above levels from 2 months ago. The Zacks Consensus Estimate for 2012 is up 17.6% in that time to 40 cents per share, while the Zacks Consensus Estimate for 2013 has advanced 14.3% to 64 cents.

Valuation Is Attractive

Currently, Overstock.com is trading at a premium to most of its peers based on P/E and P/B. Since its expected 5-year earnings growth of 20.0% is higher than the 15.0% average for its peers, the premium is justified. Additionally, the stock is trading at a PEG ratio of 1.9, which is well below the peer group average of 9.4, indicating that the momentum should continue.

6-Months Chart

Overstock.com shares have appreciated 15.9% in the past 6 months compared to a mere 1.0% increase for the S&P 500.

Shares have traded at a premium to market leaders Amazon.com Inc. (AMZN) and eBay Inc. (EBAY) in the past 6 months.

The significant increase in stock price is on account of its strong growth potential. The stock is currently trading above its 50 and 200 day moving averages of 10.59 and 7.96, respectively.

Trading volumes are considerably lower than its peers.

Incorporated in 1997 and headquartered in Salt Lake City, Utah, Overstock.com is engaged in selling branded as well as non-branded merchandise (bed-and-bath goods, home décor, kitchenware, furniture, watches, jewelry, apparel, electronics and computers, sporting goods, designer accessories and cars to name a few) through its websites. Customers can bargain before purchase and often get discounts. The majority of its revenue is generated in the U.S.

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