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Olli’s Skies Higher As It Continues To Beat the Street

April 30, 2018 / By /
Stock (Symbol)

Ollie’s Bargain Outlet (OLLI)
Stock Price

$33
Sector
Retail & Travel
Data is as of
April 13, 2017
Expected to Report
May 30
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) has been a hot stock the last year as it consistently delivered results that beat analyst estimates. The last 5 qtrs analysts had estimated OLLI’s would grow profits 8%, 21%, 20%, 27% and 13%. Instead the company has delivered 19%, 43%, 40%, 55% and 26% profit growth. But I’m not that impressed as sales grew 16% with same store sales (SSS) up just 2%. Ollie’s delivers a treasure-hunt shopping experience in offering closeout products bought at a discount and selling them for 20-70% off retail and still making a healthy 15% pre-tax profit. The company was founded in 1982 in Pennsylvania but didn’t go public until July 2015 at $16 a share. Since 2011 the company has gone from 100 stores to 234 and has 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. Since we updated these tables and charts on April 13th, the stock has climbed from $33 to $40, giving the stock a current P/E of 34. That’s high. Overall, this is a nice concept with great growth opportunity to increase its store count four-fold in the future. But this valuation is very high. I would wait and try to buy OLLI on a dip.
One Year Chart
LAst qtr OLLI had 26% profit growth on a 16% bump in sales and 2% same store sales growth. I think the stock got hyped up because it beat the street, but I honestly think the reason its beating is because this is a recent IPO and management could have stockpiled some profits before the IPO just so it could beat analyst estimates. Looking ahead, analysts expect 15%, 14%, 24% and 18% profit growth the next 4 qts which probably means +20% growth. But if you buy now at $40 a share you’re paying 34x earnings. That’s expensive. It’s not like this is the next Walmart. Also, the Est. LTG just fell from 19% to 16% since last qtr.
Fair Value
My Fair Value on this stock is a P/E of 30. That equates to $33 a share for 2017 and $40 for 2018. Annual profit estimates have been rising — 2017’s from $1.04 t0 $1.16 the past 2 qtrs — but they haven’t exactly been jumping higher. Now at $40 a share, the stock is overvalued in my eyes.
 Bottom Line
Ollie’s Bargain Outlet provides good bargains to consumers, and that’s a good recipe for success in most any economy. I feel this is a good concept that will not wither and die due to the Internet like many mall-based retailers. There’s growth opportunity for this chain to increase its store count four-fold long-term, but at $40 the stock is priced to perfection at 34x earnings. Same store sales growth fell from 4% 3QtrsAgo to 2% 2QtrsAgo and 2% LastQtr. Top retail stocks have higher SSS growth of 10% or more — 5% at least. I’m on the sidelines with this stock, I’d like to buy OLLI around $30.
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