Stock Analysis

Here's Why We Think Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) Is Well Worth Watching

NasdaqGM:OLLI
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In contrast to all that, I prefer to spend time on companies like Ollie's Bargain Outlet Holdings (NASDAQ:OLLI), which has not only revenues, but also profits. While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

Check out our latest analysis for Ollie's Bargain Outlet Holdings

Ollie's Bargain Outlet Holdings's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. As a tree reaches steadily for the sky, Ollie's Bargain Outlet Holdings's EPS has grown 22% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Ollie's Bargain Outlet Holdings shareholders can take confidence from the fact that EBIT margins are up from 12% to 16%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NasdaqGM:OLLI Earnings and Revenue History August 12th 2021

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Ollie's Bargain Outlet Holdings's future profits.

Are Ollie's Bargain Outlet Holdings Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$6.0b company like Ollie's Bargain Outlet Holdings. But we are reassured by the fact they have invested in the company. To be specific, they have US$15m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Even though that's only about 0.2% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$4.0b and US$12b, like Ollie's Bargain Outlet Holdings, the median CEO pay is around US$6.4m.

The Ollie's Bargain Outlet Holdings CEO received total compensation of just US$2.3m in the year to . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Is Ollie's Bargain Outlet Holdings Worth Keeping An Eye On?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Ollie's Bargain Outlet Holdings's strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the takeaway for me is that Ollie's Bargain Outlet Holdings is worth keeping an eye on. We don't want to rain on the parade too much, but we did also find 1 warning sign for Ollie's Bargain Outlet Holdings that you need to be mindful of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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