Overstock.com (OSTK) – Closing Short Position – down 69% vs. S&P up 20%

We put Overstock.com (OSTK: $5/share) in the Danger Zone on October 31, 2016. At the time, OSTK received a Very Unattractive rating. Our short thesis noted the firm’s growing losses, weak competitive position, and overvalued stock price.  

Our Danger Zone report, along with all of our research, utilizes our “novel dataset”[1] of footnotes disclosures to get the truth about earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”

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During the nearly three-and-a-half-year holding period, OSTK outperformed as a short position, falling 69% compared to a 20% gain for the S&P 500.

OSTK rode a wave of momentum in 2018 after announcing blockchain plans that had little impact on Overstock’s core business of selling home goods over the internet. Since this hype faded, the stock has fallen significantly. The company’s fundamentals remain weak, with a -39% return on invested capital (ROIC) and negative economic earnings. However, after falling nearly 30% year-to-date, we believe it’s time to take gains and close this short position.

Figure 1: OSTK vs. S&P 500 – Price Return – Successful Short Call

Sources: New Constructs, LLC and company filings

Note: Gain/Decline performance analysis excludes transaction costs and dividends.

This article originally published on March 30, 2020.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] In Core Earnings: New Data & Evidence, professors at Harvard Business School (HBS) & MIT Sloan empirically show that data is superior to IBES “Street Earnings”, owned by Blackstone (BX) and Thomson Reuters (TRI), and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).

Click here to download a PDF of this report.

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