Ollie’s Bargain Outlet Stock Isn’t the Deal It Appears To Be

Latest Quarter: Mixed Signals in Q1

Ollie’s Bargain Outlet delivered mixed fiscal Q1 results. Sales rose 13% year-over-year (y-o-y) to $577 million, but this fell short of market revenue expectations, raising questions about demand consistency. On the profitability side, the company beat the Street: non-GAAP earnings per share came in at $0.75, 6% above analyst consensus, reflecting tighter cost controls or margin expansion. Despite a y-o-y decline in operating margin to 9.7% from 11.1%, management reaffirmed full-year adjusted EPS guidance of $3.70 at the midpoint. The company ended the quarter with 584 locations, up from 516 a year ago, and same-store sales rose 2.6%, matching the prior year’s pace.

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Valuation: High Price, Low Justification

The real red flag lies in the valuation. Its price-to-sales ratio of 3.1 slightly exceeds the S&P 500’s 3.0, but that’s just the start. The price-to-free cash flow (P/FCF) ratio sits at 30.8, well above the S&P’s 20.5, and the price-to-earnings (P/E) multiple of 35.2 dwarfs the benchmark’s 26.4. For a company with modest performance metrics, these figures suggest investors are overpaying for underwhelming results.

Ollie’s has posted respectable top-line growth, with revenue expanding at a 9.1% annual rate over the past three years and rising 8% y-o-y to $2.3 billion in the last twelve months. The concern lies in its profitability profile. Operating margin sits at 11.0%, trailing the S&P 500’s 13.2%, while operating cash flow margin lags at 10.0% versus the index’s 14.9%. Its net income margin of 8.8% also falls short of the S&P’s 11.6%. These subpar margins don’t just underwhelm—they place Ollie’s among the weakest performers in the Trefis coverage universe.

Financial Stability: A Bright Spot, But Not Enough

Ollie’s balance sheet is arguably its strongest asset. The company holds $648 million in debt against a market capitalization of $7 billion, translating to a lean debt-to-equity ratio of just 9.7%—well below the S&P 500’s 19.9% benchmark. Its cash-to-assets ratio, while in line with the broader index, does little to counterbalance the more glaring issues: weak profitability metrics and an overstretched valuation.

Skip This “Bargain”

Ollie’s Bargain Outlet may offer customers great deals, but the stock is far from a steal. The company’s modest growth and solid balance sheet are overshadowed by weak profitability, limited downturn protection, and a valuation priced for perfection. That said, you could also explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.