Has Overstock.com Turned Around?

| About: Overstock.com, Inc. (OSTK)

Overstock.com (NASDAQ:OSTK) has long been one of my favorite stocks to dump on.

Under the colorful Patrick Byrne, whose father John built GEICO, Overstock has long been an e-commerce laggard. You may remember its ubiquitous Christmas season ads with German model Sabine Ehrenfeld, but the company is keeping a lower profile these days. Over the last few years it seems to have gotten serious, with an ad budget more commensurate with its size -- it's one-sixth the size of Macy's (NYSE:M) -- and a new focus on operations.

Part of that is an open-source program called Apache Mahout, a "big data application for clouds that engages in machine learning on big data sets." They used it to create a system called MyCurrent, whose homepage doesn't mention Overstock (it looks more like Pinterest) and looks (to the naked eye) like just another news pinup site. But it has been fairly successful and the algorithms built for it are now being used at the main site, saving about $2 million/year and delivering serious value to regular shoppers.

This is starting to show up on the bottom line, but it's a little hard to see because the bottom line has been so bad for so long. But the company broke even in the third quarter, and it should do better this quarter. The stock has responded since April, when an SEC investigation over issues dating back to 2009 closed without action, going from as low as $5.25/share to its current price of $14.10.

That's an impressive gain, but the best may be yet to come. With a market cap of $330 million, the company would now be a dirt-cheap acquisition for Target (NYSE:TGT), Macy's, or any other large bricks-and-mortar retailer looking for e-commerce infrastructure. Even a fat premium of 60% would be just a half-billion acquisition that could give such a company a fat boost to its own market cap, especially as it would clear out the unpopular Byrne.

Byrne has been divesting his own holdings, selling 263,000 shares at the first of this month. The largest shareholder is now Canadian mutual fund manager Francis M.S. Chou, who holds 2.3 million shares. Chou and the other institutional holders might be ready to cash out, and if they do you'll make a fat profit. Even if they don't, you're less likely to get "Byrned" now than you were.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.