Should You Go Overboard Buying This Fall?

| About:, Inc. (OSTK)
This article is now exclusive for PRO subscribers. (NASDAQ:OSTK) is an online retailer specializing in selling manufacturers' excess inventory, overstocks and close-outs. It has a history as a high-flying stock, shooting from a stock price in the four dollar range to a high of $76, before falling back to $5 earlier this year. It has recovered to a closing price of $10.57 on October 2, 2012. Is there more room to run this year, as the fall season leads up to Christmas, the best time of the year for retailers?

Price History

Historically, this time of year has not been kind to Overstock. Expectations have been high, but OSTK has disappointed recently. In the last seven years, the company's shares have fallen six out of seven times from October 1 to December 31, sometimes drastically. The one up year was only a slight gain. Up to now, this year has followed the pattern with the company surging mid-year, and investors will want to be wary going into the fourth quarter.

Year Beginning Price Ending Price
2011 9.27 7.84
2010 15.72 16.48
2009 14.67 13.56
2008 19.71 10.78
2007 28.80 15.53
2006 17.53 15.80
2005 38.35 28.15

Financial Statement Review

The company was not profitable last year, particularly in the second half of the year. It has a current P/E of -0.34 but for some reason, analysts reported by Yahoo! Finance expect profitability next year, giving it a forward P/E of 16.52. A risky proposition, since OSTK missed earnings last year.

In 2011, revenue dropped slightly from the previous year, following a decent increase from 2009. The company serves mostly as a middleman, and does not carry a large inventory. Cash has been stable and the company has virtually no long term debt at this time.

Should You Buy Overstock Now?

Christmas can be a great time for retailers, but not necessarily for retailers' stocks. OSTK has had a great run, doubling since early in the year. Looking at its history of fourth quarter disappointments, it makes little sense to rush in now. The company is stable, and could do well in the future, but this recommendation is to wait out the quarter and become an aggressive buyer next year.

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.