10-K:

https://www.sec.gov/Archives/edgar/data/1130713/000104746904005489/a2129464z10-k.htm

At the beginning of 2004, Overstock.com, Inc., was one of the hottest growth stocks on Wall Street. Operating in the highly competitive "e-tail" industry, the company had grown revenue from less than $2 million in 1999 to over $200 million in 2003. By March of 2004, Overstock.com's stock price had risen to around $30, representing a price-sales multiple of 2 and a market-book multiple of 10. The company's spectacular rise was attributed in large part to its high-achieving chief executive, Dr. Patrick Byrne. Byrne, who holds a master's from Cambridge University and a doctorate from Stanford University, had previously run a subsidiary of Warren Buffett's Berkshire Hathaway. Enthusiasm for the company in early 2004 was summarized in The Washington Post as follows:

Fifty-five venture capitalists turned down Patrick Byrne's discount-shopping Web site for funding at the peak of dot-com investing mania. So the graduate of Walt Whitman High, Stanford University and Warren Buffett's real world school of business funded it himself. Five years later, Overstock Inc. is a publicly traded company, pulling in nearly 7 million shoppers a month to its Internet bargain bazaar and ranking right up there with Target.com and BestBuy.com as one of the Web's top 20 e-commerce sites. But Byrne, its maverick chief executive, won't be satisfied until Overstock.com becomes a household name on par with eBay and Amazon.com, the Internet's top shopping hangouts, each of which draws more than 30 million people a month.

The news, however, was not all good. Overstock.com had yet to report a positive annual profit and had only logged one quarterly profit, with that being back in the fourth quarter of 2002. The last 12 months had seen the departure of the company's chief financial officer, chief operating officer, and president. Moreover, competition was heating up from the likes of industry giants Amazon.com and eBay as well as smaller start-ups, such as privately held SmartBargains.com. Against this backdrop, Overstock.com entered 2004 with plans to raise an additional $50 million, primarily to fund the inventory acquisitions necessary to maintain the company's aggressive growth plans. Its capital-raising plans called for the issuance of 1.5 million additional shares through an offering underwritten by W. R. Hambrecht and Co. and JMP Securities. Enthusiasm for Overstock.com remained high on Wall Street, with analysts at both W. R. Hambrecht and JMP Securities issuing "buy" recommendations on the stock. Analysts at W. R. Hambrecht summarized their investment opinion as follows:

Reiterating Buy rating and increasing price target to $40. Our price target implies an enterprise value to CY04 revenue of 1.4x, vs. a 1.1x multiple for OSTK's discount retailing peers and vs. 8.7x for internet bellwethers AMZN and eBay (EBAY: Buy Rated). We think OSTK shares deserve a premium to its discount retailing peers because of the company's superior top-line growth prospects.

Maximizing return on equity involves a trade-off between operating profitability (margin on sales) and turnover (efficiency of asset utilization). Consider the different business models of

A closeout e-tailer, such as Overstock.com (OSTK).

A regular e-tailer, such as Amazon.com (AMZN).

A traditional closeout retailer, such as Ross Stores (ROST).

A department store retailer, such as May Department Stores (MAY).

Discuss how the different business models involved in each of these categories will influence the trade-off between profitability and turnover. (Compare Overstock.com vs. AMZN, ROST, MAY)