Is Beyond an overlooked e-commerce winner?

Key Points

• Beyond, Inc. just got a big vote of confidence from Wall Street.
• With Bed Bath & Beyond rapidly being integrated into the business, much has happened since the Q3 report.
• Not until Beyond proves it can squeeze value out of BB&B will its stock be a bargain.

Beyond, Inc. NASDAQ: BYON just got a big vote of confidence from Wall Street. On Monday, sell-side research firm D.A. Davidson gave the former Overtstock.com a buy rating and $41 price target that's well ‘beyond' any other analyst forecast — and implies more than 100% upside from the stock's current level.

The bullish endorsement came after shares of the evolving online retailer dropped 60% from August 2 to November 24. Not the Black Friday sale management was hoping for. 

Beyond had run to nearly $40.00 after announcing the buyout of Bed Bath & Beyond's (BB&B) digital assets, an emotionally driven rally that we suspected was overdone. With the euphoria worn off, it's back to reality for Beyond — recent financial results haven't been very good.  

Third quarter sales fell 19% year-over-year to $370 million, missing company guidance. A $0.61 per share net loss was better than the Street anticipated but miles away from the $0.13 per share profit posted in the prior year period. Other key performance metrics such as active customers and average order value were also down from last year. Higher expenses largely attributed to product discounts didn't help matters.

To be fair, though, slowing sales and rising costs aren't challenges unique to Beyond. Inflation and rising rates have gripped retailers of all kinds in 2023, even behemoths like Amazon.com Inc. NASDAQ: AMZN and Walmart Inc NYSE: WMT. Beyond also deserves a partial pass because it was in transitory flux during most of the quarter because of its BB&B purchase. 

With BB&B rapidly being integrated into the business, much has happened since the Q3 report. As we enter an all-important holiday shopping season that's already flashing record sales figures, the more streamlined Beyond merits another look.  

What has changed for Overstock.com since the Q3 release?

Besides switching to the BYON ticker (sorry Beyonce), Overstock.com refurbished its brand identity from 'the new Bed Bath & Beyond" to simply Beyond. Its stock started trading under its new symbol on November 6 and on a new exchange. Formerly Nasdaq-listed under OSTK, BYON trades on the New York Stock Exchange (NYSE). 

Corporate logistics out of the way, Beyond has turned its attention to solidifying its leadership team. A few weeks ago, it announced that Jonathan Johnson "stepped down" from his CEO and Board member roles in accordance with a mutual agreement. Translation: As the company begins a critical new chapter, its Board didn't feel Mr. Johnson was the right person to lead a turnaround story. 

Although current President David Nielsen has been appointed interim CEO, a search is underway to find the best (internal or external) candidate. With the company at a pivotal crossroads of e-commerce success or failure, the Board's CEO selection could make or break the BB&B transition.  

Is Beyond stock a retail bargain?

Overstock's share price and valuation soared during the pandemic as Americans turned to online shopping for just about everything. But as Covid fears eased and stores reopened, both came crashing down. Perhaps too far.

The unprofitable BYON is trading at around 0.5x sales. Close peer Wayfair Inc. NYSE: W has a slightly higher 0.6x price-to-sales ratio. This suggests that Beyond is a bit undervalued here, although Wayfair has better fundamentals. More importantly, it shows that the market has yet to reward a premium valuation to BYON simply for acquiring BB&B intellectual property. Not until Beyond proves it can squeeze value out of BB&B will its stock be a bargain. 

Beyond operates under a more familiar name and a very different business model. Instead of selling surplus and returned merchandise of all kinds, it is focused on selling furniture and home goods under the Bed Bath & Beyond banner. It remains to be seen if familiarity and focus translate to better financial performance.

Much is riding on the name change. Beyond is betting that the BB&B still has tremendous brand value despite its brick-and-mortar demise. Consumers won't be seeing BB&B stores around town, but they will see some familiar brand logos and marketing. Beyond recently began running TV ads highlighting the new digital availability of the ridiculed yet beloved 20% BB&B coupons.

For now, a 'wait-and-see' approach may be most prudent. With a stronger brand in its arsenal, Beyond has the potential to grab market share and surprise the market. If the retailer can string together a few solid quarters, its low-priced stock may become a bestseller.