After monster 3,590% rally off pandemic low, Overstock can still jump another 50% as it benefits from 'seismic forces,' Piper Sandler says

• Since its pandemic low on March 18, shares of Overstock.com have posted an eye-popping rally of 3,590% as of Friday's close, thanks in part to positive trends in its ecommerce business.
• And according to Piper Sandler, Overstock's rally will continue, as the "new and improved" company benefits from "seismic forces."
• In a note published on Monday, Piper initiated Overstock.com with an "overweight" rating and a $140 price target, representing 50% upside from Friday's close.
• If Overstock does reach Piper's $140 price target, it would represent a 5,434% rally from the March 18 low.
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Investors in Overstock.com are likely cheering on Monday after Piper Sandler joined the bull camp, helping shares of the ecommerce company continue its monster rally higher.

Since Overstock bottomed at $2.53 on March 18, shares rocketed 3,590% higher as of Friday's close, as the company benefited from positive trends in its retail ecommerce segment.

Piper Sandler initiated Overstock at an "overweight" rating and set a price target of $140, representing 50% upside potential from Friday's close. If that price objective is achieved, it would represent a monster rally of 5,434% from Overstock's March 18 bottom.

Shares of Overstock jumped as much as 27% to $118.88 in Monday trades.

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According to Piper, Overstock is a "new and improved" company that is benefiting from "seismic forces that have dramatically improved" its earnings outlook "well into the future."

Specifically, Overstock has benefited from a "well-timed" refocus onto the online home furniture business, which has seen a boom as more shoppers transition to ecommerce.

Another key trend driving Overstock's business higher is a boom in home renovations due to COVID-19, as people try to upgrade their living spaces now that they are spending more time there.

Overstock still has many levers to pull to improve sales and profitability, including improving its mobile app experience, implementing more targeted pricing and promotions, and focusing in on its core value-conscious customer, Piper said, adding that these initiatives are "low-hanging fruit" for the company.

Overstock is also working on a blockchain project, with its t-Zero and Medici ventures units. t-Zero is a trading platform for security tokens, while Medici Ventures is a portfolio of blockchain companies partly owned by Overstock, according to Piper Sandler.

Investors shouldn't get too hung up on these initiatives, as the units represent only 2.5% of company revenue, are not profitable, and are still early-stage, according to the note. Piper Sandler views these initiatives as a "minor call option on blockchain technology," but the real focus should be on Overstock's ecommerce business unit.

Despite the recent run in shares, the company remains "undervalued" relative to other high-growth consumer technology companies given that it is profitable on an Ebitda basis and is growing revenue at an annual rate of more than 20%.

Overstock's second quarter revenue of $783 million represented revenue growth of 109%.

Piper Sandler derived its $140 price target from an enterprise-value-to-sales multiple of 2x on estimated sales in 2021, adding that it's a reasonable valuation given Overstock's peer group is trading at 4x and its closest competitor, Wayfair, trades at a multiple of 2.3x.

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