Overstock: An Opportunity Begging For an Activist With 10x Upside Potential

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Overstock.com: An Opportunity Begging For an Activist With 10x Upside Potential by Jordan S. Terry, Street Stone Advisors

I’ve finally uploaded our presentation on Overstock.com (OSTK) to Slideshare, which now includes a summary of what we do here at Stone Street Advisors LLC, how we do it, and how we’ve performed since our founding in 2011. The investment thesis is fairly simple:

  • Disregarded by all except Prem Watsa, OSTK has slowly and quietly grown into a $1.5bn/year business with an installed customer base
  • Operational challenges remain, but are easily identifiable and curable
  • Even after committing to a new, unnecessary HQ construction project which destroys significant shareholder value, OSTK still has enormous, triple-digit upside from the secular shift to online value shopping, particularly in its core home goods market, which is expected to grow 10.5% CAGR through 2023, conservatively
  • We believe the well-known issues surrounding the company and management (including CEO Patrick Byrne) are not, in fact, insurmountable; on the contrary, we’ve developed a fairly simple restructuring plan to get the company back on the right path
  • This is an attractive opportunity particularly for long-term, operations-focused active investors to help push the company – and the stock price – to the next level and beyond
  • We also recommend adding three new independent directors to help oversee the firm’s resurgence and ensure the board and management are held accountable to all shareholders

We believe this is an attractive risk/return opportunity, conservatively:

  • The average valuation across the 20 scenarios we modeled for Overstock is $82/share, a 248% increase from 1/14/2015 close.
  • Absent a return of capital or change in capital structure, an activist can expect to see >$200/share, +800%
  • If our restructuring/recapitalization plan is implemented, we see >$250/share, +900%

Please get in touch if you have any questions or comments. Our contact information can be found at the end of the presentation.

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