An Analysis Of Overstock.com (OSTK)

| Total Words: 990

Why is a value investor writing about an unprofitable internet company? Because value investing is about finding dollars that trade for fifty cents; with a market cap of less than 75% of sales, Overstock.com (OSTK) looks like it may be exactly that.

But isnt it too risky?

The greatest risk in any investment is the risk of overpaying. So, the real question is: what is Overstock worth? I think its worth at least $1.5 billion. With Overstocks market cap currently sitting around $500 million, my valuation certainly looks far fetched. But, theres only one way to know for sure. Lets take apart my argument piece by piece, and see if any of my assumptions are unreasonable.

First Assumption: Over the next five years, Overstock will neither generate truly free cash flow nor consume cash. In other words, its free cash flow margin will average 0%. Cash generation in some years will exactly offset cash consumption in other years. Obviously, this assumption is unreasonable, because there is almost no chance the cash flows will exactly offset.

Thats not a problem if it turns out Overstock does generate some free cash flow over the next five years. In that case,...

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