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January 26, 2023

Confirmed: Overstock.com Is Doomed

Overstock.com has had its detractors over the years. Everyone from Barry Ritholtz to Felix Salmon to Joe Weisenthal to, of course, Sam Antar have been calling shenanigans on the company on everything from financial reporting to social media stalking. The company has made some dumb decisions and they seem to be willing to blame anyone and everyone, including social media. Sure, escaped mental patient and Overstock CEO Patrick Byrne recently won an Ernst & Young Entrepreneur trophy but COME ON. I wouldn't be surprised to learn that Dick Fuld was in line for a lifetime achievement award.

Anyway. Lately, things for the Overstock have gotten worse. Much, much worse. The company was humiliated in court by Goldman Sachs earlier this year and sloppy financial reporting and disclosures is taking its toll on their stock price. If all that wasn't bad enough, today our favorite accounting curmudgeons, Tony Catanach and Ed Ketz, jumped on the pile. They've been listening to all these haters and thought it was about time they did some digging, so Tony and Ed ran some numbers (duh) and – YEP! – the company is pretty much doomed:

The Z-score interpretation is straight-forward [Ed. note: check out their post for the complete formula]. If Z is greater than 2.60, then the firm has little financial distress and is healthy. The model predicts this firm will not fail. A Z-score between 1.10 and 2.60 is in the grey zone; it is indeterminate whether the firm will fail or not fail. The analyst should garner additional evidence to make this assessment.  But, if the Z-score falls below 1.10, the model predicts corporate failure. And the lower the Z-score, the greater the amount of financial distress.
 
For Overstock, the metric has these values:
 
Year Z-Score
2006  -9.4
2007  -7.0
2008  -6.8
2009  -2.6
2010  -3.1
2011  -7.3

So things aren't looking good for ol' O.co (or whatever) these days and now that the Grumpies have jumped on the bandwagon, it seems like the company has no one on their side. Is there any unbiased party that would be willing to make a case for Byrne & Co.? Anyone? If so, your silence is not helping. 

Overstocked and Underperformed [GOA]

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