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Ollie’s Bargain Outlet is a Quality Company

October 22, 2017 / By /
Stock (Symbol)

Ollie’s Bargain Outlet (OLLI)
Stock Price

$27
Sector
Retail & Travel
Data is as of
September 7, 2016
Expected to Report
Dec 7 – 12
Company Description
olli_store

Ollie’s Bargain Outlet Holdings, Inc. is a retailer of brand name merchandise. The Company’s product offerings include food, such as packaged food, including coffee, bottled non-carbonated beverages, salty snacks, condiments, sauces, spices, dry pasta, canned goods, cereal and cookies; housewares, such as cooking utensils, dishes, appliances, storage and garbage bags, detergents and cleaning supplies, cookware and glassware, frames and giftware; books and stationery, such as novels, business, cooking, inspirational and coffee table books along with digital versatile discs (DVDs), greeting cards and various office supplies and party goods, and bed and bath, such as household goods, including bedding, towels, curtains and associated hardware. It operates approximately 200 stores averaging over 33,000 square feet across approximately 20 contiguous states in the Eastern half of the United States. Source: Thomson Financial
Sharek’s Take
David SharekOllie’s Bargain Outlet (OLLI) delivers a treasure-hunt shopping experience in offering closeout products at discount prices. The company was founded in 1982 in Pennsylvania but didn’t go public until July 2015 at $16 a share. After the IPO, I didn’t think this stock was a great investment because I am from Buffalo and we had Ollie’s there for many years. But last week I dove into the numbers and came away amazed. Since 2011 the company has gone from 100 stores to 200 east of the Mississippi, with a total opportunity of 950 in the US. New stores cost $1,000,000 to build, do $3,700,000 in sales the first year and deliver pre-tax profit (EBITA) of around $550,000. From 2011 to 2015 OLLI grew sales and profits 18% a year. The future Estimated Long-Term Growth Rate is 19% a year. I feel Ollie’s has a fantastic business model. TJ Maxx has proven you can grow a substantial business and have loyal customers with discounted closeout merchandise. My only issue is this stock sells for 30x earnings. Dollar stocks have been weak recently, and if that weakness travels this way perhaps I can the stock for my wish price of $23 a share, which is 25x earnings. 
One Year Chart
olli_2016_q3Last qtr Ollie’s delivered 40% profit growth on a 16% gain in sales, with a respectable gain in 4% same store sales. The company whipped the 20% profit growth estimate and beat the street by 3 cents for the 4th straight qtr. Qtrly profit growth estimates are 27%, 13%, 10% and 10%. I would like better estimates if I’m going to pay 30x earnings for a 18%-19% grower,
Fair Value
olli_2016_q3_phMy Fair Value on this stock is a P/E of 30. Right now that’s $27 a share, with next year’s Fair Value set at $31. I contemplated buying here but looking for a slight correction to $23 would give us more upside potential.
 Bottom Line
olli_2016_q3_10yrOllie’s Bargain Outlet likes to joke in its ads, but the stock is serious. Consumers are always looking for bargains, in both good and bad economies. Ollie’s buys goods at a discount and sells them for 20-70% off retail — while still making a healthy 15% pre-tax profit. I want to buy this stock but feel at 30x earnings it isn’t quite on sale enough. I have OLLI on my radar and will look to buy in for growth investors at $23 a share.  
Power Rankings
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