The stock of Ollie's Bargain Outlet Holdings (NAS:OLLI, 30-year Financials) is believed to be 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 $87.42 per share and the market cap of $5.7 billion, Ollie's Bargain Outlet Holdings stock shows every sign of being 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 three years and is estimated to grow 14.81% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Ollie's Bargain Outlet Holdings has a cash-to-debt ratio of 1.19, which is better than 70% of the companies in the industry of Retail - Defensive. The overall financial strength of Ollie's Bargain Outlet Holdings is 6 out of 10, which indicates that the financial strength of Ollie's Bargain Outlet Holdings is fair. This is the debt and cash of Ollie's Bargain Outlet Holdings over the past years:
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 8 over the past 10 years. Over the past twelve months, the company had a revenue of $1.9 billion and earnings of $4 a share. Its operating margin is 15.99%, which ranks better than 96% of the companies in the industry of Retail - Defensive. Overall, the profitability of Ollie's Bargain Outlet Holdings is ranked 8 out of 10, which indicates strong 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 performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Ollie's Bargain Outlet Holdings is 18.3%, which ranks better than 90% of the companies in the industry of Retail - Defensive. The 3-year average EBITDA growth rate is 26%, which ranks better than 77% 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 18.82, and its cost of capital is 8.99. The historical ROIC vs WACC comparison of Ollie's Bargain Outlet Holdings is shown below:
In closing, the stock of Ollie's Bargain Outlet Holdings (NAS:OLLI, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 77% 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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