OLLI Stock Study (2-8-23)

I recently* did a stock study on Ollie’s Bargain Outlet Holdings (OLLI) with a closing price of $56.75.

M* writes:

     > Ollie’s Bargain Outlet Holdings Inc is a retailer of brand name
     > merchandise at drastically reduced prices. It offers customers a
     > selection of brand name products, including housewares, food,
     > books and stationery, bed and bath, floor coverings, toys, and
     > hardware. It operates stores across the Eastern half of the
     > United States. Its differentiated go-to-market strategy is
     > characterized by a unique, fun and engaging treasure hunt
     > shopping experience, compelling customer value proposition and
     > witty, humorous in-store signage and advertising campaigns.
     > These attributes have driven rapid growth and strong and
     > consistent store performance for the company.

This medium-sized company has grown sales and earnings at annualized rates of 16.9% and 32.4%, respectively, over the last nine years. Lines are mostly up, straight, and parallel until 2021 when sales dipped and EPS started to fall. Over the last 10 years, PTPM has been higher than peer (stated as PSMT, DOL.TO, and BIG) and industry averages, increasing from 5.7% in ’13 to 15.4% in ’20 before starting to decline. The last-5-year average is 12.9%.

Since 2015, ROE has increased from 7% to 19% (’20) before heading lower. The last-5-year average is 15.2%, which is lower than peer and industry averages. The debt-to-capital ratio has fallen from 37.7% in ’13 to 25.1% in ’21. This is just over the last-3-year average and lower than peer and industry averages. Long-term debt is minuscule with most debt being uncapitalized leases. Current ratio is 2.83.

I assume long-term annualized sales growth of 5% based on the following:

• CNN Business projects flat YOY and 5.4% growth per year for ’22 and ’21-’23, respectively (based on 15 analysts).
• YF projects YOY 3.8% and 9.9% for ’23 and ’24, respectively (15 analysts).
• Zacks projects YOY 3.8% and 10.6% for ’23 and ’24, respectively (6).
• Value Line projects 9.8% growth per year from ’21-’26.
• CFRA projects 3.8% YOY and 7% per year for ’23 and ’22-’24, respectively (14).
• M* provides a 2-year annualized estimate of 7.8%.

I assume long-term annualized EPS growth of 6% based on the following:

• CNN Business projects a 33.1% YOY contraction and 0.2% growth per year for ’22 and ’21-’23, respectively (based on 15 analysts) along with 5-year annualized growth of 0.5%.
• MarketWatch projects 0.9% and 7.1% growth per year for ’22-’24 and ’22-’25, respectively (20 analysts).
• Nasdaq.com projects 49.4% YOY and 32.2% per year for ’24 and ’23-’25, respectively (7, 7, and 3 analysts).
• Seeking Alpha projects 5-year annualized growth of 15.8%.
• YF projects YOY 33.1% contraction and 50% growth for ’23 and ’24, respectively, along with 5-year annualized growth of 7.5% (15).
• Zacks projects YOY 33.1% contraction then 49.4% growth for ’23 and ’24, respectively, along with 5-year annualized growth of 12.1% (7).
• Value Line projects 13.8% annualized growth from ’21-’26.
• CFRA projects YOY 35% contraction and 0.6% contraction per year for ’23 and ’22-’24, respectively (14).

While my forecast is lower than the average of five longer-term growth rates (10.5%), I am overriding projection from the last annual (not quarterly) data point. The latter is a more aggressive calculation.

My Forecast High P/E is 29. Over the last seven years, high P/E has ranged from 29.8 (’17) to 48.1 (’19) with a last-5-year average of 39.8.

My Forecast Low P/E is 15. Over the last seven years, low P/E has ranged from 7.8 (potentially a downside outlier in ’20) to 24.7 (’18 and ’19) with a last-5-year average (excluding the 7.8) of 20.6.

My Low Stock Price Forecast is $36.50 based on the annual (not quarterly) earnings as mentioned above. This is just below the 52-week low price and 35.7% below the previous closing price.

All this results in an U/D ratio of 1.9, which makes OLLI a HOLD. The Total Annualized Return (TAR) computes to 10.7%.

PAR is 4.7%, which is lower than desired for a medium-sized company.

To assess margin of safety (MOS), I compare my inputs with those from Member Sentiment (MS). Out of 200 studies over the past 90 days (excluding my own along with 14 others with Low Stock Price Forecast above last closing price), projected sales, projected EPS, Forecast High P/E, and Forecast Low P/E average 10.9%, 11.8%, 31.1, and 18.3, respectively. I am lower on all inputs. Value Line projects an average annual P/E of 24, which is slightly lower than MS (24.7) but higher than mine (22).

Overall, I appear to have a decent MOS built into this study, but I need to see the stock fall ~10% before considering a purchase for longer-term investment

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.