Thursday, August 18, 2005 is Such a Blah Stock has been gaining some headlines lately, so I figured I should take a quick look at its financials. Their recent quarter gross margin is 14% compared to Amazon's 23% annual gross margin. OSTK's admin costs are outpacing its gross profits... not good. It needs to seriously increase its gross profit per employee if it wants to generate any operating profits, and I don't know how they will do that with its CEO focused on his crusade to bring down the evil empire led by the Sith Lord.

Onto its balance sheet... OSTK's inventory as a percentage of its total assets is approximately 26% compared to AMZN's 14%, which implies that OSTK is having a relatively tougher time getting rid of its inventory. OSTK has also been building up their PP&E, and such investments may be of some help to the company as its recent quarter gross margin has improved from a little over 10% in the same quarter in the previous year to its recent 14%. However, this figure isn't even close to that of AMZN, most likely due to company size and some product differences. There are really too many factors to consider, which I'm not going to get into in this 15 minute analysis.

It has negative cash from operations, and its figures don't seem kosher... particularly the change in inventory. All in fairness, perhaps I've missed something; plus, this particular blog isn't a formal analysis. Beware of the free cash flow shown in Yahoo, because it is posting the recent quarter and general figures. It appears that the Yahoo figure is including sales and purchases of marketable shares (from the cash from investments). From what I understand, fixed capital investments should be factored in calculating free cash flow... not including marketable securities. With that said, OSTK sold over $100 million worth of marketable securities which would increase Yahoo's version of OSTK's free cash flow. I'm not certain exactly how Yahoo is calculating free cash flow, but I tend to notice they seem off at times... So I would recommend doing due dilligence before taking my word for it... especially from this blog analysis.

It doesn't seem wildly overvalued at 1.38 price/sales. However, P/S shouldn't be the only valuation ratio in determining a company's value. I wouldn't recommend buying nor shorting (even if it was possible) OSTK. I will say that Byrne's recent actions can't be good for OSTK.

With this said, I do not have any long or short positions of the companies mentioned in this blog.


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