Exploring Overstock's Discount

It is impressive (and capital-efficient) when a retailer grows a business using a minimal amount of capital. In the case of Dell, Costco and Wal-Mart, they are using other people's money (i.e., vendors') to finance their business growth.

Study the operating model of Overstock and you'll see the same dynamic. About 62% of its business is partner fulfillment (product shipped directly from vendor to Overstock's customer). Growing this business requires minimal capital. And this business generates an enduring float.That's because the company receives cash two days after a transaction and vendor payment isn't due for 30 days.

Criticism No. 3: CEO Patrick Byrne Is Crazy

Overstock CEO Patrick Byrne is a prime target for critics. Byrne's use of elaborate imagery (e.g., "Sith Lord") and talk of conspiracy have made it easy for critics to lampoon him. While all the criticism generates entertainment for the media, it obscures some serious charges levied against certain hedge funds, such as manipulation of so-called independent research and front-running. (TheStreet.com and James Cramer were issued subpoenas last month by the Securities and Exchange Commission in connection with an agency investigation into such manipulation.)

For potential investors in Overstock, media attacks on Byrne have added a layer of complexity to the assessment of the company. Investors have to be able to sort through these media attacks, some of which are beyond the bounds of reason. For example, columnist Herb Greenberg (a former columnist at TheStreet.com) recently lumped Patrick Byrne together with the likes of Al Dunlap, Jeff Skilling and Dennis Kozlowski.

My Trip to Salt Lake City

What is the truth about Byrne? Is this 43-year-old Stanford Ph.D. crazy?

A couple of weeks ago, on a day Byrne was traveling and out of the office, I flew to Salt Lake City to talk with employees at Overstock, including several members of the senior management team. The ostensible reason for my trip was to discuss the company's model and operations with members of the management team. I also wanted to take the opportunity to quiz everyone that I talked to about working with Byrne on a daily basis.