Investing & Financing: Overstock.com

I thought this was kind of funny... I was looking through the CNN Money website, and came across this quote from never-pulled-a-profit Overstock.com company:

Overstock President, Patrick Byrne: "Q3 was rough. My bad"

I guess he wanted to put it bluntly? LOL...

Anyway, their current market cap is over $600M, and they haven't pulled a positive annual profit EVER. They have been losing an average of $6-8M since going public, yet their stock is on the rise? As a matter of fact, the EPS (earnings per share) averages -$0.50/cents per share!

[quote="Eric"]That's kind of strange - I wonder what the major malfunction is![/quote]

I guess that's the good thing about the stock market - It can turn you into a mega millionaire even if you don't produce a profit. I think that's how it happened in the "dot-com" days - people were investing in an IDEA rather than investing in a profit return. Once investors realized the idea wasn't going to turn into profit, they dumped it - but the founders of such companies are all sipping latte in their private jets.

I guess my original analysis didn't really do justice the the investors credibility - Overstock's share price has been crashing since January 2005, now trading at ~$33/share, down from ~$75 - but I would have expected it to crash sooner than that. Overstock blames the crash in share price on "naked short sellers", or people trying to make a buck by seeing the stock fall. Naked short selling (unlike standard "short selling") is an illegal activity. However, most analysts agree that "naked short selling" or even "short selling" shouldn't hurt a strong company. That's because if a company is strong, even if the share price drops to ultra-low levels, people will say "that's a good deal!" and begin to re-invest, driving prices back up.

Applying that to Overstock, they are a rather weak company (profit-wise), and short selling or "naked short selling" could definitely hurt them.

When an online store starts to advertise on tv, sell all of your stocks and watch for their president hopping on a plane to remote islands outside of cuba.