Overstock.com Shaping Up To Be A Christmas Value Play And Possible 2015 Carryover

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

Strong third quarter earnings and an early read on fourth quarter highlight upside to full year estimates.

Company has new initiatives in farm to table, credit cards, and loyalty program.

Company has low market capitalization at less than 0.5 times annual sales.

It's not easy being a discount online retailer. The market is dominated by Amazon.com and no let up is coming from the large e-tailer. In this crowded market emerges one online discount retailer that has a recipe for success that could battle Amazon this holiday season and also reward investors as a strong value and growth stock going forward. That company is Overstock.com (NASDAQ:OSTK).

Last week Overstock announced their impressive sales for the highly coveted Thanksgiving weekend. Over the Thursday through Monday time period, Overstock saw total sales increase 23%. The company saw a boost of 8% to average order size over the same time period. The sales on Cyber Monday broke the company's record for highest sales in one day, with a 24% increase from the prior year. Thanksgiving Day saw sales on the company's site increase 38%. Big ticket items like furniture and home furnishings helped boost overall sales and the average size of order.

This strong push over the key shopping weekend is a good sign for the company. In the fourth quarter, which runs September to December, analysts see sales rising 13.8% to $451 million. This would represent around one third of the company's annual sales. With the increasing shift to online for holiday shopping and Overstocks' strong Thanksgiving weekend, I think Overstock could actually come in higher for the fourth quarter.

The strength also follows up a stellar reported third quarter. The company saw a 13% increase in orders and a 6% increase in the average size of orders to $180. Overall revenue grew 17.1% to $353.0 million. Keep in mind the fourth quarter could also see a boost from Overstock's announced liquidation of its Bidz.com jewelry haul. The company valued the items at $89 million and says it is the largest liquidation in company history. If the company can get rid of all the items at even 50% of retail, that's an additional $44.5 million to the top line for the fourth quarter.

Overall, analysts see Overstock reporting revenue of $1.48 billion for fiscal 2014, an increase of 13.4%. The analysts see revenue growing 10.8% in fiscal 2015 to $1.64 billion. Overstock currently has a market capitalization of $617 million, or less than half of its annual sales.

Sales for 2015 could also easily come in ahead of analysts' estimates. The company has rolled out several programs to boost sales, including a price war with Amazon.com and a new partnership with PBS kids. One of the programs I'm excited about is Overstock's Farmers Market initiative.

Back in November, Overstock rolled out the program which will bridge the gap of farm to table. The company said, "We're integrating small farms, community-supported agriculture, and co-ops into our technology." Overstock will act as a middle man and believes it can serve 20% of the U.S. population with farm fresh food. The company will also provide biographies of farms used in each package, giving a sense of local pride to customers.

For its role, Overstock will see a revenue sharing model that could help boost overall sales and also get new customers to its site. This farm fresh initiative follows up on other small business programs like Main Street Revolution and Pet Adoption that Overstock has used to grow the business.

Overstock also continues to see its Club O loyalty program gain traction. The program, which costs customers $19.95 a year, comes with free shipping and also a generous rewards payout of 5 to 25% on all items purchased. That along with a new branded credit card, should help boost loyalty to the site and repeat purchases.

In the end, Overstock.com isn't perfect and faces major competition from Amazon.com (NASDAQ:AMZN), other e-retailers, and physical stores. With a strong business model and a growing loyal customer base, Overstock should benefit from the shifting demand to purchase gifts and other items online. Consider adding a little retail flare to your portfolio with this discount retailer. Shares are down more than 16% in 2014 and are setting up for a breakout to start 2015.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.