Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Is a Good Investment? (NASDAQ: OSTK) is attracting some attention by issuing one of the first blockchain-based stocks.

Overstock subsidiary Medici and Keystone Capital are testing tØ; a blockchain-based shared ledger, as an alternative to the traditional stock market, Coinbase reported. The ledger lets investors buy stock directly and have a completely verifiable record trail.

The popularity of  tØ is in dispute, Coinbase reported that it had only two users, but an Overstock press release claims the company has sold 126,565 shares of stock worth $1.9 million through it. Overstock’s maverick CEO and long-time Wall Street critic Patrick Byrne hopes that tØ will become an alternative to the traditional stock market.

Is Overstock a Good Investment?

Shared-ledger based equities might be a good idea, but is a good investment? The answer, from a value investor’s perspective is no.

A brief look at the financials provided by ycharts shows that Overstock is a pretty lousy stock. That raises the possibility tØ is simply a gimmick designed to unload a few shares of a lousy stock on the public.

Here are a few reasons why is a lousy stock:

  • A diluted earnings per share number of .37 on September 30 2016.

  • A negative profit margin of -.7% on the same day.


  • A net income of $9.537 million for third quarter 2016.


  • A negative free cash flow of -$4.99 million.


  • Assets of $424.28 million.


  • Cash and short term investments of $124.427 million.

  • $74.48 million in cash from operations.


  • No dividend and no dividend history.


After looking at this I cannot see how the $19.65 share price that Overstock was fetching on December 20, 2016, can be justified. This company simply is not making any money.

Is Making Money?

The only positives that I could find in Overstock’s financial report were growing revenues and cash from financing.

Between September 2015 and September 2016, Overstock’s revenues did grow by $106 million, rising from $1.648 billion to $1.754 billion. So Overstock’s business is growing slightly even though it is not making any money from sales.

Overstock did make some money from cash from financing during the third quarter, $49.08 million. Notice that money did not come from its core business but from a sideline.

This calls Overstock’s whole business model of an online reseller or close out store that takes alternative currencies into serious question. Not even such moves as being one of the few mainstream US retailers to accept bitcoin has helped Overstock.

How Amazon and Walmart are Threatening Overstock

Overstock is a niche player in the world of online retail and that niche is increasingly threatened by the behemoths Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT).

Recently I went online to shop for some wine glasses and noticed something very interesting. The best price for port or 8.5 ounce wine glasses was at eight for $24 or $3 a piece.

Walmart’s price was better than anything at Overstock and comparable to Amazon. More interestingly I noticed that Amazon’s prices were cheaper than Overstock for those willing to shell out $10.99 a month or $99 a year for Prime.

Since I get free two day shipping through Walmart’s Shipping Pass program I decided to buy from that retailer. One reason I ordered through Walmart was I can take the glasses back to a Walmart store if one is broken.

It looks as if Amazon and Walmart are undercutting Overstock’s prices and offering a far higher level of service. One has to wonder why anybody would buy anything from Overstock.

How to Buy Walmart and Amazon Gift Cards with Bitcoin

Even the acceptance of bitcoin might not help Overstock drum up business. It is fairly easy to purchase gift cards for bitcoin at websites like egifter. It took me less than 10 seconds to find egifter with a Google search.

If you want to buy Walmart gift cards with Bitcoin, simply go to Gyft. Currently Gyft lets you buy a Walmart gift card worth up to $250. Why I wonder would anyone bother with Overstock when you can simply use bitcoins to buy gift cards for retailers that offer better service, bigger selections and lower prices?

The combination of gift cards and Bitcoin is even opening new markets to Amazon and presumably Walmart. The Guardian reported that residents of Venezuela are using bitcoin to purchase Amazon gift cards to get around rationing, hyperinflation, currency controls and cash shortages in that nation. Venezuelans simply use bitcoin to buy a gift card, shop with it at Amazon and have the order shipped to them.

Overstock is not a Good Investment

The only reason I can see to buy Overstock would be as a speculative play for its blockchain technology. If that works it might be worth more than the company’s online market place. Other than that I see no value here.

My prediction is that if tØ succeeds Overstock will be acquired by a large bank like JPMorgan Chase (NYSE: JPM) or Goldman Sachs (NYSE: GS) or a Fintech company like PayPal (NYSE: PYPL). That technology will be more valuable than the rest of Overstock’s business if it works.