Buy Small Cap Overstock.com (OSTK) Now That Its On Discount? BIG, ROST & AMZN

Yesterday, small cap online discount retailer Overstock.com, Inc (NASDAQ: OSTK) went on sale by 22.28% after announcing a disappointing earnings report which seemed to lack much management commentary, meaning it might be time to see whether its worth buying the stock given the new discount plus take a look at its performance verses that of other discount retailers like small cap Big Lots, Inc (NYSE: BIG), large cap Ross Stores, Inc (NASDAQ: ROST) and the big kahuna of online retail, Amazon.com, Inc (NASDAQ: AMZN).

What is Overstock.com, Inc?

Small cap Overstock.com is a Salt Lake City based online discount retailer selling a broad range of products, including furniture, rugs, bedding, electronics, clothing, jewelry, and cars. In addition, Worldstock.com is a fair trade department dedicated to selling artisan-crafted products from around the world while Main Street Revolution supports small businesses across the United States by providing them a national customer base. Overstock.com is among the top five most visited mass merchandiser websites.

As for peers, small cap Big Lots operates more than 1,400 retail stores serving 48 states selling a broad assortment of merchandise, including consumables, seasonal products, furniture, housewares, toys and gifts; large cap Ross Stores is the largest off-price apparel and home fashion chain in the United States with 1,112 locations in 33 states, the District of Columbia and Guam; and Amazon.com needs no further introduction.

What You Need to Know or Be Warned About Overstock.com, Inc

Yesterday, Overstock.com reported that total net revenue for the fiscal year 2013 rose 19% to $1,304 million due to a 17% increase in average order size from $135 to $158 coupled with a 2% increase in orders while total net revenue for Q4 2013 rose 16% to $397.6 million primarily due to an increase of 13% in average order size from $132 to $149 (due to a sales mix shift into home and garden products) coupled with a 3% increase in orders. Net income came in at $88.5 million for fiscal 2013 verses $14.7 million for 2012 while net income for the Q4 came in at $73.6 million verses $8.8 million, but that was primarily due to a one time $72.7 million net impact of a deferred tax asset valuation release. To make matter worst, the press release did not come with any real commentary from management and I am not seeing any transcript from an earnings call – meaning investors were not given any reason to NOT run for the exits.

As I noted back in July after its mid year earnings report, Overstock.com appeared to have moved its business into more higher-margin goods like home and garden products while controlling expenses. In that earnings call, someone had asked: "…roughly 60% home and garden already, is that going even further that direction?" The reply from Robert Hughes, the SVP, Finance and Risk Management, had been:

Well, I am not sure if we are sharing that, but our home and garden category is doing quite well. But there are other categories in the high end jewelry brings up average order size for example. But the home and garden is shifting, I can say, I'll say it's beyond that number you throw out but we don't want to give the exact number.

Certainly, it would be helpful to have further commentary regarding holiday sales as well as the products or categories that did well and whether or not those were high or low margin products.

Otherwise, Overstock.com is the first major online retailer to accept the controversial Bitcoin digital currency which allows customers to buy products online without entering their credit card information. The company is optimistic that accepting Bitcoins will bring in new consumers, but it may only be a matter of time before other retailers also start using them.

Share Performance: Overstock.com, Inc vs. BIG, ROST & AMZN

On Thursday, small cap Overstock.com sank 22.28% to $22.12 (OSTK has a 52 week trading range of $10.80 to $35.60 a share) for a market cap of $525.88 million, but the stock is still up 24.8% over the past year and up 101.5% over the past five years. Here is a look at the performance of Overstock.com verses that of Big Lots, Ross Stores and Amazon.com: 

As you can see from the above performance chart, Ross Stores and Amazon.com have been the best performers, Big Lots has been flat for the past year and Overstock.com has been all over the place.

Finally, here is a look at the latest technical charts for Overstock.com and potential performance peers:

The Bottom Line. The problem for investors in small cap Overstock.com is that the stock has already had a good run up and there was a lack of explanation with the earnings report to keep investors fully in the loop of what is happening at the company. Given the nervousness many investors have about retailers after the holiday retail season, Overstock.com's management should have done a better job of explaining what happened last year and what the company is going to do moving forward.