Stock Analysis

What Ollie's Bargain Outlet Holdings, Inc.'s (NASDAQ:OLLI) P/E Is Not Telling You

NasdaqGM:OLLI
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When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 17x, you may consider Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) as a stock to avoid entirely with its 26.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Ollie's Bargain Outlet Holdings has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Ollie's Bargain Outlet Holdings

pe-multiple-vs-industry
NasdaqGM:OLLI Price to Earnings Ratio vs Industry May 10th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ollie's Bargain Outlet Holdings.

How Is Ollie's Bargain Outlet Holdings' Growth Trending?

Ollie's Bargain Outlet Holdings' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 77% last year. Still, incredibly EPS has fallen 21% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 6.3% each year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 9.8% each year growth forecast for the broader market.

In light of this, it's alarming that Ollie's Bargain Outlet Holdings' P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Ollie's Bargain Outlet Holdings' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Ollie's Bargain Outlet Holdings currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Ollie's Bargain Outlet Holdings with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Valuation is complex, but we're helping make it simple.

Find out whether Ollie's Bargain Outlet Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.