Intelligent investors need to know that the companies they invest in have a clear mission. It can be acceptable for an aggressively growing firm to invest current revenues in future operations even at the expense of earnings, but at the end of the day, a company needs to know with certainty where they are and where they want to go. Overstock.Com (
OSTK - Free Report) appears to be adrift – with no clear mission. Founded in 1997, Overstock.com started life as an e-retailer, selling the inventories of failed companies at steep discounts. Initially growing by word of mouth, Overstock eventually developed innovative advertising campaigns, started selling new merchandise as well as “overstock” and competed with the likes of industry behemoth Amazon ( AMZN - Free Report) . Agressive and Unconventional Overstock (and specifically CEO Patrick Byrne) spent 2005-2010 mired in a protracted legal battle over aggressive short-selling of its stock and the brokers who were allowing hedge funds to sell it without borrowing. Most of the claims were eventually settled out of court, but it signaled a willingness on Byrne’s part to use non-conventional strategies to defend the business, even well outside of traditional business lines. Unfortunately, this aggressiveness has not always served the company well and Overstock has been losing share in its core business of selling merchandise online. Outpaced by newer competitors, specifically Wayfair( W - Free Report) , Byrne announced after a big Q4 2017 loss that the company is “adopting the classic Internet ‘growth strategy’ I previously eschewed: high growth, negative GAAP income, funded out of negative cash conversion cycle.” Subsequent steeply downward earnings revisions earn Overstock a Zacks Rank #5 (Strong Sell). Overstock is now expected to lose $4.58/share in 2018. Ill-timed Crypto Bet The final big issue facing Overstock is its investments in cryptocurrencies and blockchain technology. Overstock was one of the first big retailers to accept Bitcoin as payment. Instead of just taking Bitcoin payments, Overstock threw itself headfirst into the crypto-currencies, holding assets in Bitcoin, and even planning the launch of its own massive crypto coin offering. In an interview with CNN Money on December 17, 2017, Byrne stated that he “Trusts (Bitcoin) more than any fiat currency.” (Keep in mind here that “fiat currencies” includes the U.S. dollar, the Euro and the Yuan.) He added “Who knows if it’s on its way to $100,000/Bitcoin.” Unfortunately, those remarks coincided almost exactly with the recent top of the market for Bitcoin, which has tumbled 50% since then, from a high of $19,185 in December to just $8,935 recently. When Bitcoin was rallying furiously, so did Overstock.Com stock, as investors saw the company as a way to play the crypto-craze in the equity markets. Rising more than 400% in 2017 to a high of $89.90, Overstock has since sold off precipitiously to $35. Notice the similarities of the Bitcoin chart to Overstock with both peaking in December 2017: Serious investors need to understand the businesses of the companies they own. With Overstock, this is impossible as they seem to be simply chasing fads rather than developing a core business that makes sense.
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