In the Face of Soft Earnings, Ollie's Bargain Outlet is Betting on Itself Despite missing on the top and bottom lines for the second consecutive quarter, Ollie's management remains committed to the company's growth plan. If they're right, contrarian investors may find some...

Ollie's Bargain Outlet says their growth strategy is all systems go

Shares of Ollie's Bargain Outlet Holdings (NASDAQ: OLLI) stock are down 17.5% percent since it reported a double miss in its third-quarter earnings report on December 2, 2021. However, despite the company warning that revenue and earnings may remain under pressure for the next several quarters, management remains committed to the company's growth plan.

That growth plan goes beyond the 45 new stores that have opened in 2021. On the earnings call, the company expressed confidence in its strategy to open 50 to 55 stores annually on a go-forward basis. Eventually, Ollie's plans to have a network of 1,050 stores. It currently has 430 stores in 29 states.

When pressed on the company's ability to both correct the issues in its supply chain and commit to its growth strategy, president and chief executive officer John Swygert said, "we didn't even give it a thought to slow down the growth."

Based on the reaction of analysts this forecast is drawing mixed reviews. However, contrarian investors may consider an investment in OLLI stock.

Is the Discount Chain Being Discounted?

Ollie's Bargain Outlet Holdings is demonstrating what can happen when a stock is priced to perfection. It may be fair to say that OLLI stock shouldn't have been trading in the $90 range eariler in 2021. And it seems equally likely that, at $51.78 at the time of this writing, that the stock is oversold now.

In saying that, we're not attempting to put the proverbial "lipstick on the pig." The discount retailer delivered a clunker of an earnings report. Earnings came in 13 cents a share below forecast. And revenue wasn't any better missing by $32 million. What made this even worse is that it was two quarters in a row when the company missed on both the top and bottom lines.

And the company's full-year guidance of revenue between $1.76 to $1.77 billion and earnings per share between $2.30 and $2.35 for fiscal year 2021 are both lower on a year-over-year basis.

The reason, as the company management explained, was a transitory issue with its supply chain. The company said it simply didn't get holiday merchandise in the story early enough. That seems plausible.

However, the company is also saying these issues are likely to remain into 2022. And that is spooking at least some analysts. Seven analysts have issued a lower price target for OLLI stock and JPMorgan Chase (NYSE:JPM) downgraded the stock from Neutral to Underweight and gave the stock a $50 price target.

What to Do With OLLI Stock?

With short interest at over 20%, OLLI stock is only for those who are comfortable taking a short position. That being said, the stock does appear to be oversold and risk-tolerant investors may find a short-term trade to be profitable.

Looking out over a longer term, the bullish case for OLLI stock depends on three things. First, the company's supply chain difficulties need to be as transitory as the company claims they are. Second, the company must follow through on its growth strategy. And third, the company needs to make progress on the digital front. They are the only chain in their category to not have an e-commerce presence.

The company did not offer forward guidance for 2022, but it's not hard to imagine that an extra 50 or so stores would be a nice shot in the arm for revenue and profits.

If you buy into those narratives as well as the company's reputation as being part of the growing discount retail segment, then you should keep OLLI on your watch list. There won' t be any information until the company's next earnings report.