Overstock.com Inc – Sustainable retail segment growth

Overstock.com Inc (NASDAQ: OSTK) is the American internet retailer selling primary furniture. The Company was founded in 1999 and headquartered in Utah.

Investment Highlights - Overstock.com Inc – Speculative Buy at USD 53.64

• The revenue, net income and diluted earning per share have shown an uptrend in Q3 FY20 ended on 30 September 2020.
• The newly acquired retail customers witnessed an year-on-year increase of 141% during Q3 FY20.
• The volume on Tzero ATS had shown a growth of 856% to 4 million shares during Q3 FY20
• From a technical standpoint, the Company is trading at a 14-day RSI of 45.76, which indicates further upside potential in the stock.

Key Risks

• The Company may undergo further expansion to cater to the needs of its customers, which would increase the cost levels.
• The Company is exposed to compliance risk.
• The risk of lockdowns and restrictions may persist for an uncertain duration of time, impacting the earnings of the Company.

Recent Developments

On 07 January 2021, the Company had updated that it will participate in Needham & Co. 23^rd Annual Growth Conference.

On 14 December 2020, the Company had updated that it was recognized in the annual Loyalty360 awards for its innovative technology and employee engagement with customers. The Company had received a Gold award for Employee engagement.

On 10 December 2020, the Company updated that tZERO, has completed a technology integration for its broker-dealer subsidiaries with FlexTrade.

Financial Highlights (for Q3 FY20 ended on 30 September 2020 as on 29 October 2020)

(Source: Company result)

• The Company had reported a 111% year-on-year growth in total net revenue to USD 732 million.
• The Company had reported a gross profit of USD 171 million, which represented 23% of total net revenue. The Gross profit margin had demonstrated growth of 330 basis points during Q3 FY20 from the equivalent period of the prior year.
• The diluted earnings per share had improved to USD 0.50 during Q3 FY20.
• Regarding the financial position, the Company had a cash and cash equivalents of USD 530 million as of 30 September 2020.
• The Company had raised USD 193 million at USD 84.50 per share during Q3 FY20. The offering was completed on 14 August 2020.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Conclusion

The Company had shown confidence over its retail segment and believed that it would continue to outperform during the fourth quarter of FY20. The quarterly sales of Retail segment had already doubled with new customers growth of 141% during Q3 FY20. The blockchain-based business, Medici Ventures would continue to make significant investments. tZERO’ had received FINRA approval to provide retail brokerage services through the subsidiary, tZERO’ Markets.  On the technical front, the Company is trading at a 14-day RSI of 45.76, indicating an upside potential in the stock price. The stock made a 52-week low and high of USD 2.53 and USD 128.50, respectively.

Based on the sustainable retail segment outlook and the valuation method used above, we have given the "Speculative Buy" stance on Overstock.com Inc at the closing market price of USD 53.64 (as on 08 January 2021), with lower double-digit upside potential based on 66.42x Price/NTM Earnings (approx.) on FY20E Earnings Per Share (approx.).

American Resources Corp – Restarted its Perry County Resources (PCR) complex

American Resources Corp (NASDAQ: AREC) is the supplier of raw materials to the global infrastructure market. The Company has its operations located in eastern Kentucky and southern West Virginia.

Investment Highlights - American Resources Corp – Speculative Buy at USD 2.14

• The Company’s subsidiary, American metals LLC had reported a growth of 30% during Q3 FY20 compared to Q2 FY20.
• From the valuation perspective, the Company is having lower Price/Earnings, Price/Book and EV/Sales, compared to the average of corresponding multiples of the Energy sector.
• On the profitability front, the Company had reported net income of USD 123,982 for Q3 FY20, while it had reported a loss during the equivalent period of the prior year.
• From a technical standpoint, the Company is trading higher than its 20-day simple moving average price of USD 1.85, which indicates further upside potential of the stock.

Key Risks

• The Covid-19 pandemic may result in reduced activity levels and postponement of projects.
• The Company is operating in a highly competitive market which could reduce its market share.
• The Company is exposed to the risk of fluctuating oil prices.

Recent Developments

On 06 January 2021, the Company announced that it had received baseload orders for the production of raw materials servicing the infrastructure marketplace at its Perry County Resources ("PCR") mining complex.

On 16 December 2020, the Company announced that it had restarted its operations at its Perry County Resources (PCR) complex.

On 15 December 2020, the Company updated regarding the development of geotechnical analysis stage of installing solar and battery storage technologies at its Perry County Resources (PCR) carbon mining complex located in Perry County, Kentucky.

Financial Highlights (for Q3 FY20 ended on 30 September 2020 as on 29 October 2020)

(Source: Company result)

• The total revenue of the Company was dropped to USD 0.295 million during Q3 FY20, while it was USD 1.85 million during Q3 FY19.
• The Company had not made any revenue from the sale of Coal.
• The Company had reported net income of USD 123,982 for Q3 FY20 compared to a net loss of negative USD 7.34 million during Q3 FY19.
• The Carbon production and processing operations remained on halt in response to Covid-19 pandemic during Q3 FY20.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

AREC is well-positioned to be a long-term supplier of raw materials to the current infrastructure market. The Company had taken various strategic steps towards transformation into an infrastructure company producing metallurgic carbon and rare earth metals. The Company had acquired two mining companies during its third quarter, and Perry County Resources had also restarted in December 2020. On the technical front, the Company is trading higher than its 20 days simple moving average of USD 1.85, which indicates an upside potential in the stock price. The stock made a 52-week high and low of USD 4.93 and USD 0.32, respectively.

Based on the strong financial position and decent growth prospects, we have given the "Speculative Buy" stance on American Resources Corp at the closing market price of USD 2.14 (as on 08 January 2021).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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