Why Ollie's Bargain Outlet Stock Jumped 19% Last Month

Business is better than expected and analysts are starting to take notice.

Shares of closeout retailer Ollie’s Bargain Outlet (OLLI -1.42%) jumped 19.1% in June, according to data provided by S&P Global Market Intelligence. The company reported financial results that turned investors’ heads. Then a prominent analyst raised their outlook for the business, giving investors more confidence in this comeback story.

Sales for Ollie’s can be up and down. And sales (and profit margins) took a step back in 2022 before bouncing back in 2023. On June 5, the company reported financial results for the first quarter of 2024 that set a positive tone for the upcoming year. Q1 net sales were up nearly 11% year over year whereas net income jumped by almost 50%.

With its Q1 report, management for Ollie’s modestly boosted its financial guidance for the rest of the year. And the stock did trend higher following the report. However, the bigger jump in stock price came on June 17 when J.P. Morgan analyst Matthew Boss upgraded his outlook for the stock, as seen on the chart below.

OLLI Chart

OLLI data by YCharts

According to The Fly, Boss essentially pointed out that Ollie’s stock is cheaper than it was several years ago even though its growth prospects may be better now. That motivated him to give the stock a price target of $105 per share. And it appears to have boosted investor confidence.

Ollie’s is winning where others are stumbling

To Boss’ point, Ollie’s has raised its outlook for the long-term potential of its brand in recent years. In the fourth quarter of 2023, management said it believes the market will support 1,300 locations someday compared to the 518 locations it had in Q1. For perspective, its long-term goal was just 950 locations a few years ago.

It’s not just that Ollie’s believes its long-term opportunity is improving. It’s also that other retailers are struggling and Ollie’s can quickly gobble up market share thanks to their missteps. A good example came in late May when it bought 11 locations for 99 Cents Only Stores out of bankruptcy. It allows Ollie’s to move into new markets quicker than it anticipated.

What’s next for Ollie’s stock?

Ollie’s expects to earn at least $250 million in operating income this year. Compared to its market capitalization of just less than $6 billion, I believe shares are still reasonably priced, even after the run-up during June.

Ollie’s definitely isn’t a company that will blow investors away with growth. And it’s still possible for sales and profit margins to ebb and flow in coming years. But it’s a business that can still produce enough growth to provide good stock returns for patient investors. Therefore, I think it’s still a stock worth considering today.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Ollie’s Bargain Outlet. The Motley Fool has a disclosure policy.

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