Ollie's Bargain Outlet Holdings Stock Gives Every Indication Of Being Modestly Undervalued
- By GF Value
The stock of Ollie's Bargain Outlet Holdings (NAS:OLLI, 30-year Financials) gives every indication of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $88.39 per share and the market cap of $5.8 billion, Ollie's Bargain Outlet Holdings stock is estimated to be modestly undervalued. GF Value for Ollie's Bargain Outlet Holdings is shown in the chart below.
Because Ollie's Bargain Outlet Holdings is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 18.3% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must 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 1.16, which ranks better than 70% of the companies in the industry of Retail - Defensive. Based on this, GuruFocus ranks Ollie's Bargain Outlet Holdings's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Ollie's Bargain Outlet Holdings over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Ollie's Bargain Outlet Holdings has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $1.8 billion and earnings of $3.67 a share. Its operating margin is 15.34%, which ranks better than 96% of the companies in the industry of Retail - Defensive. Overall, GuruFocus ranks the profitability of Ollie's Bargain Outlet Holdings at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Ollie's Bargain Outlet Holdings over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Ollie's Bargain Outlet Holdings is 18.3%, which ranks better than 89% of the companies in the industry of Retail - Defensive. The 3-year average EBITDA growth rate is 26%, which ranks better than 78% of the companies in the industry of Retail - Defensive.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Ollie's Bargain Outlet Holdings's return on invested capital is 17.27, and its cost of capital is 9.07. The historical ROIC vs WACC comparison of Ollie's Bargain Outlet Holdings is shown below:
In short, The stock of Ollie's Bargain Outlet Holdings (NAS:OLLI, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 78% of the companies in the industry of Retail - Defensive. 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.
