After a long weekend of relaxation and nice weather (for a change!), I spent Sunday catching up on my neglected pile of business magazines, emails, SEC filings, research reports, et al.

The most interesting tidbit I came across was a June 23rd 13G filing that revealed that Tiger Technology Management, LLC had acquired a new 5.4% stake in e-commerce 'closeout' retailer, Overstock.com (OSTK). The SEC requires that banks, broker/dealers, insurance companies, and investment companies file a 13G when their beneficial ownership in a company exceeds 5% on a passive basis.

Tiger Technology Management is a roughly $500 million hedge fund that is based in New York City and run by a rising star of the hedge fund business, Chase Coleman. The fund was up over 50% in 2001, and reportedly was up big again in 2002. Referred to as a "Tiger Cub", Tiger Technology is one of several funds loosely run under the old Tiger Management umbrella. Run by the famous Julian Robertson, Tiger Management shut down in 2000 after returning 31.5% per year (before fees) between 1980 and 2000. Julian Robertson was extensively profiled in a December 2002 Institutional Investor Magazine article that also included a description of the Tiger Technology Fund.

Unlike the rest of the Internet sector, OSTK has been generally treading water over the past few months following disappointing Q1 results. At Friday's $13.27 per share, OSTK is up roughly 50% from its momentary end of May 2003 lows, but the stock is still relatively flat from where it began the year.

Analysts currently expect the company to earn 4 cents per share in 2003 on $172 million in revenues, and 51 cents per share in 2004 on $242 million in revenues. I think OSTK's 2003 estimates could prove to be far too low if management can get back on the ball in time for the seasonally strong Q3 and Q4 periods. However, Q2 could be another weak quarter, as I'm hearing that overall e-commerce sales (except for travel and finance) still haven't started picking up after the Iraq war lull.

OSTK's current enterprise value (market cap + debt - cash) is equal to roughly 1x the company's expected 2003 sales -- that's cheap compared to its peers which trade in the 2-4x sales range, but OSTK is an inherently lower margin beast given its position as a closeout retailer.

Although smart money buying is just one datapoint of many, and you always have to do your own homework, we do like to see where the smart money is placing its bets. Currently, we track an intentionally limited list of roughly a dozen money management firms (mostly obscure hedge funds that main street is not aware of) that we respect. We track their maneuvers as a source of new ideas.

We intend to do more work on OSTK and will keep you posted.

Let's have a great week!

Overstock Hammered on Cautious Comments. (2/25/03)