- Needham Analyst Anna Andreeva downgraded Overstock.com OSTK from Buy to Hold and removed the price target of $30.
- The analyst said the home furnishings industry grew 2% through the third quarter of ’22 (using US Census data) and slowed further to -2% in November.
- Overstocks have outgrown Wayfair Inc W or seven consecutive quarters (1Q20-4Q21) that reversed this year.
- The analyst expects Wayfair 23 to remain on the offensive as the company presses ahead with restoring profitability and supplier inventories remain elevated through at least 1H23.
- With an active customer base of about 1/3 that of Wayfair, the analyst believes Overstock is lost in the aggressive advertising tone of a larger competitor.
- also read: Choppy Waters: The S&P 500 will trade in this range for the next 3 years, says a market veteran
- Analyst still expects gross margin to increase in 23 as OSTK delivers operational efficiencies – sales and marketing likely won’t have much opportunity given new influencer campaigns under the new CMO.
- OSTK has an outstanding balance sheet at $9 cash/share (~1/2 the market cap) and should have some option from Tzero over the longer term – although the analyst believes the valuation could fall without a revenue recovery.
- In the 3 years leading up to the pandemic, OSTK sales declined in the high single digits on average, with supply chain shifts supporting pandemic stock gains.
- Now that industry oversupply is likely to continue into 23 and larger competitors Amazon.Com, Inc. AMZN and especially Wayfair still aggressively advertise, the analyst thinks OSTK is a shareholder again.
- Price promotion: OSTK shares are trading down 1.46% at $18.60 on the last check Wednesday.
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