Updated from 1:22 p.m. EDT

Shares of

Overstock.com

(OSTK) - Get Report

swelled more than 11% on Tuesday, following an analyst's upgrade.

The online liquidator is likely benefiting from the recent launch of its auction site, said Frank Gristina, who covers the company for Avondale Partners. Because of new sales through the site, Overstock is likely to raise revenue projections on Thursday when it reports second-quarter results, he predicted.

"We believe OSTK's auction site will be most useful to smaller sellers early on, but could gain sales volume in 2005 when we believe the company will have developed a more robust user interface to attract

high-volume sellers," Gristina said.

Gristina ratcheted up his rating on Overstock to "market outperform" from "market perform" and raised his price target to $50 from $35.

In recent trading, Overstock's shares were up $4.66, or 11.4%, to $45.64.

On average, Wall Street expects Overstock to post a loss of 19 cents a share for its just-completed quarter on $102.9 million in sales, according to Thomson First Call. In the third quarter last year, the company lost $3.7 million, or 23 cents a share, on $57.8 million in revenue.

For the full year, analysts are looking for a loss of 40 cents a share on $479.58 million in sales.

Overstock has regularly expanded its revenue, but the company has struggled to reach and maintain profitability. Indeed, its growth pattern has largely echoed that taken by e-tail leader

Amazon.com

(AMZN) - Get Report

during the dot-com boom.

Gristina's report also rang a familiar tune: Instead of valuing Overstock solely on its profits -- or potential profits -- the analyst reached his price target for Overstock in part by placing a multiple on the company's expected sales over the next 12 months.

Analysts are now looking for a wider loss from Overstock than they were at the beginning of September, Gristina noted. But the company's shares have appreciated during that time period, he said.

That indicates "OSTK is not being valued on EPS, but rather top-line expectations," he said.

Overstock's new auction site, which it launched late last month, offers it a chance to grow revenue faster than expectations, Gristina said. The number of items listed on the site has grown from 401 on Sept. 27 to 17,744 on Monday, he said. Meanwhile, the site has gotten favorable reviews from big

eBay

(EBAY) - Get Report

sellers, he said.

Overstock has tried to lure auction sellers and customers to its site by offering a discount to eBay's listing fees. The company also promises an easier-to-use site and better protection from fraud.

But the company faces a huge uphill battle in trying to take a piece of eBay's business.

The key challenge for any auction site is getting a critical mass of buyers and sellers. Without items to buy, customers won't visit the site. But without ample numbers of customers, sellers will be reluctant to pay to list their items.

Although eBay's customer service, fees and policies have upset many of its users, the company has only reinforced its dominance in online auctions, fending off challenges from well-financed rivals such as Amazon,

Yahoo!

(YHOO)

and

Microsoft

(MSFT) - Get Report

. Despite trying to build on auction users' dissatisfaction with eBay, each of those companies failed to lure and keep that critical mass of buyers and sellers.