Ollie's Bargain Outlet Holdings (OLLI): A Comprehensive Valuation Analysis
The stock of Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI) has marked a daily gain of 2.72% and a significant 3-month gain of 36.08%. With an Earnings Per Share (EPS) (EPS) of 2.4, the question arises: Is the stock fairly valued? This article aims to provide a comprehensive valuation analysis of OLLI, exploring its intrinsic value in light of its recent performance and future prospects. Read on to discover the true worth of OLLI's stock.
Introducing Ollie's Bargain Outlet Holdings Inc (NASDAQ:OLLI)
Ollie's Bargain Outlet Holdings Inc is a prominent retailer of brand-name merchandise, offering drastically reduced prices on a wide array of products. Ranging from housewares and food to books, stationery, and hardware, Ollie's provides an engaging treasure hunt shopping experience for customers across the Eastern half of the United States. The company's unique, fun, and compelling value proposition, coupled with its witty, humorous in-store signage and advertising campaigns, have driven rapid growth and consistent store performance.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples that the stock has traded at, an adjustment factor from GuruFocus based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) stock shows every sign of being fairly valued based on the GuruFocus Value calculation. At its current price of $79.28 per share, Ollie's Bargain Outlet Holdings has a market cap of $4.90 billion, indicating that the stock is fairly valued. Because Ollie's Bargain Outlet Holdings is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Examining OLLI's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Ollie's Bargain Outlet Holdings has a cash-to-debt ratio of 0.67, which ranks better than 61.31% of 305 companies in the Retail - Defensive industry. Based on this, GuruFocus ranks Ollie's Bargain Outlet Holdings's financial strength as 7 out of 10, suggesting a fair balance sheet.
Assessing Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Ollie's Bargain Outlet Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.90 billion and Earnings Per Share (EPS) of $2.4. Its operating margin is 9.7%, which ranks better than 90.35% of 311 companies in the Retail - Defensive industry. Overall, the profitability of Ollie's Bargain Outlet Holdings is ranked 8 out of 10, which indicates strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Ollie's Bargain Outlet Holdings is10.9%, which ranks better than 71.53% of 288 companies in the Retail - Defensive industry. The 3-year average EBITDA growth is -4%, which ranks worse than 80.54% of 257 companies in the Retail - Defensive industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Ollie's Bargain Outlet Holdings's ROIC is 8.6 while its WACC came in at 6.4.
Conclusion
Overall, Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) stock shows every sign of being fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 80.54% of 257 companies in the Retail - Defensive industry. To learn more about Ollie's Bargain Outlet Holdings stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
