Should you invest in cheap Ollies shares?

Strength inside Ollie’s store NASDAQ: OLLI The results, including market-leading growth and wider margins, suggest this stock is a buy on post-release weakness. There was nothing negative in the report, but strength was expected, so a news selling event caused a marginal reduction in price. The stock will likely trend higher as the company outperforms the retail sector, raising its guidance and long-term store count target. How high it will be depends on upcoming results, but details suggest this stock could more than double in the coming years.

Ollie’s Leads Retailers in Q4: Guidance Up

Ollie’s had a robust quarter with 18% revenue growth. Growth is impacted by an extra week in the quarter, but even at the adjusted rate, growth outperformed the retail sector by more than double. Ollie’s adjusted revenue and earnings growth also led to low-price retail, including the industry leader TJX Companies New York Stock Exchange: TJX.

The problem with stock prices today is that the 18% growth was expected and provided no catalyst for the market. The growth is driven by a 3.9% increase in comp store sales, compounded by new store growth. The company added seven stores in the quarter for net growth of 9% year over year. Ollie’s now operates in thirty states and still has a solid growth trajectory ahead of it.

The margin news is among the most interesting news in the report. The company expanded its gross and operating margins to generate strong cash flows and accelerate earnings growth. The margin strength was primarily due to reduced shrink and supply costs offset by slightly higher operating expenses.

The key detail is that operating margin improved by 270 basis points, leaving adjusted EPS up 45% to $1.23, $0.07 higher than Marketbeat’s consensus. Taking into account the extra week, earnings are up about 35% year-over-year and are $0.03 higher than consensus.

The guidance provides a double catalyst for Ollie investors because 2025 will be strong and the long-term outlook has improved by 23%. Guidance for F2025 is for revenue and earnings well above consensus estimates and may be conservative given the outlook for store count growth. The company plans to add forty-eight new stores, or another 9.4%, and increase its long-term store count goal by 250. The latest target is the result of new data showing that the migration to suburban areas continues, broadening the addressable market for Ollie’s Store.

Ollie’s outlet is a good investment

Ollie’s cash flow and balance sheet make it a good investment. Cash flow allows the company to internally finance growth without relying on debt. There is debt on the balance sheet, but leverage is almost non-existent, leaving the company in a solid position. Highlights at the end of 2024 include a 25% increase in liquidity, a 12% increase in total assets, and a 10% increase in equity.

Share buybacks boosted shareholder value, reducing the count by 0.7% year-over-year. The company has $85.6 million left under the current authorization, about 1.8% of market capitalization with shares near $75, and is expected to increase the amount once it runs out.

Ollie’s uptrend is intact, but the market is struggling to maintain traction

The uptrend in Ollie’s share price is intact, but the post-release action shows the market is struggling with traction. Solid support at the 150-day EMA faces strong resistance at the 30-day EMA, with risk favoring long-term investors. Assuming support near $75 remains solid, this stock should recover soon and could reach a new high by the summer. If not, Ollie shares could retreat to more attractive levels. In this scenario, the best targets for solid support are $72.50 and $70.

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