Utah-based Overstock.com (
) has reported its third quarter results on Oct. 25 per the
welcoming of a new earnings season, covering the months between
July and September. Guru investor and 10% owner of Overstock,
of Chou Associates Management, reduced his holding of the stock
one day later.
Overstock experienced increases in revenue by 7%, gross profit by
21% and diluted earnings per share by $0.44, in a year-over-year
comparison with 2011 data.
A spike in site visitors combined with average order sizes fueled
the surge in revenue, according to the results. The company also
increased in sales and marketing expenses by 8%, which propelled
the positive climb in gross profits, in addition to an alteration
in pricing strategies.
Additionally, reduced staffing and lower legal fees contributed
to less technology and G&A expenses (general and
administrative), accounting for 6% and 10% decreases.
Currently, Overstock is down 2%, trading at $15.19 per share,
close to its one-year high of $15.50.
Chou decreased his Overstock shareholding by 42,500 shares on
Oct. 26, making this his first reduction of the stock since
adding it to his American fund, Chou Opportunity Fund, in the
first quarter of 2012.
Chou Opportunity Fund is one of two funds started in 2010
incorporated in the United States , that are managed by
Toronto-based Chou Associates; the other one is Chou Income Fund.
The transaction purpose was outlined in Chou's SEC filing
stating: The transaction was "due to appreciation" and that "the
value of investments in securities of the issuer represented over
30%" of the fund's total investments, as of the date of the
transaction. Additionally, the transaction "was effected solely
for diversification purposes and more specifically, to reduce the
concentration of the fund's investments in securities...As of the
date hereof, [Chou Associates] continues to believe that the
subject of class of securities is undervalued and represents an
attractive investment opportunity."
During a Fairfax shareholder dinner in April hosted by Sanjeev
Parsad of business-investment firm Corner Market Capital Corp.,
Chou, who was in attendance with fellow value investor
and several others, was noted giving his insight on his
shareholding of Overstock.
of the dinner by financial consultant and founder of stock
research site, StingyInvestor.com, Norman Rothery first cited
Overstock in comments made by Hamblin-Watsa's Sam Mitchell.
According to Rothery, Mitchell said that Fairfax Financial
Holdings' decision to switch to Overstock was wrong because it
"did not stick to its value proposition which was 'great stuff at
low prices,'" by establishing its O brands, and referring to
Overstock as one of the firm's "screw ups from last year."
Chou then responded to Mitchell with a mentioning of Overstock's
market cap at the time, and $30 million to $40 million in excess
cash, making a point that the company's "legal expenses will
likely fall, and [Fairfax]'s results will be much better without
them - a good value."
The legal expenses that Chou referred to were Overstock's
long-time legal battle against several of its brokers and
financial servicers, particularly Goldman Sachs and Morgan
Stanley, among others.
Under Case No. CGC-07-460147, filed through the Superior Court of
California, San Francisco County, Overstock sued the companies in
February 2007, alleging they manipulated the securities market
causing the price of Overstock shares to decline.
In an Overstock press release posted the same day the company
filed suit, chairman and chief executive officer, Patrick Byrne
said, "I believe that this conduct is harming our company and our
shareholders deeply, and investors have been failed by those who
have a duty to protect them." The release also stated Overstock
sought $3.48 billion in damages.
After years of court proceedings, the judge of the case, Judge
John E. Munter, reached a decision on Jan. 10 claiming in court
filings that the parties being sued "presented competent,
affirmative evidence showing that the plaintiffs [Overstock]
cannot establish that any of the defendants engaged in acts of
market manipulation in California."
In Chou's 2012 semi-annual letter to shareholders, he noted that
Overstock contributed to the fund's negative performance in the
first half of the year, along with RadioShack Corp. (
) and Level 3 Communications (
). Chou Associates also listed Overstock as a decline contributor
in its 2011 annual report.
With a market cap of $363.3 million, Overstock has a P/B ratio of
19.58 and a P/S ratio of 0.3. It has a Business Predictability
rank of 1 out of 5 stars, a Financial Strength rank of 6 out of
10 and a Profitability and Growth rank of 5 out of 10.
To read more about
and his investments, visit these GuruFocus articles:
Francis Chou: The Investment Guru that You've Never Heard Of
Francis Chou's Semi-Annual Letter
Latest Picks from Francis Chou
Canadian Guru Francis Chou Buys Bank of America Warrants,
Francis Chou on OverstockAbout GuruFocus: GuruFocus.com tracks
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