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Can OLLI Stock Sustain Its Momentum after Fiscal Q2 2018?

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Updated

Upbeat projections

Ollie’s Bargain Outlet’s (OLLI) stock price rose 52.4% to $81.15 on August 27 on a YTD (year-to-date) basis. We expect this stock to continue on this uptrend after the company announces its fiscal second-quarter earnings, which is planned for September 5. Analysts expect the company’s sales to register 11.8% growth to $284.6 million. The company’s adjusted earnings per share are expected to rise 33.3% to $0.36.

Discount store retailers Dollar General (DG) and Five Below (FIVE) were up 15.2% and 72.8%, respectively, on a YTD basis on August 27. However, Dollar Tree (DLTR) and Big Lots (BIG) were down 13.3% and 12.4%, respectively, on a YTD basis on that date.

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What is driving the stock?

Ollie’s Bargain Outlet’s (OLLI) business model is its strongest positive factor. The company stocks books, food, houseware, and toys from both branded and non-branded labels. The closeout merchandise retailer procures these goods at low wholesale prices. The prices for these goods are substantially lower than those sold by retail department stores and mass market retailers.

The company is on a store expansion drive, as the new store growth model is conducive to higher sales and cash flows. The company typically seeks second-generation real estate for store sites. There is no shortage of supply of low-cost second-generation real estate due to the disruption seen in the retail sector.

Driven by its store expansion program and low-cost proposition, Ollie’s Bargain Outlet expects its sales to reach $1.21 billion–$1.22 billion for fiscal 2018. This reflects 12.0%–13.0% growth on a YoY (year-over-year) basis. Over the past five years, Ollie’s has delivered a double-digit annual sales growth rate.

A look at OLLI’s forward PE ratio

On August 27, Ollie’s Bargain Outlet was trading at a 12-month forward PE (price-to-earnings) ratio of 42.8x. The company is trading at a higher valuation multiple in comparison with its peers. Five Below, Big Lots, Dollar Tree, and Dollar General are trading at 12-month forward PE ratios of 41.5x, 10.3x, 15.6x, and 16.7x, respectively.

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