Stocks that go down can still be profitable for your portfolio.
Sometimes this happens through short selling. Sometimes you sell put contracts for a stock that you suspect is going undervalued. But quite often you are simply buying a stock that the market has overlooked.
This is the case with Paul Price and Ollie’s Bargain Outlet Holdings OLLI.
“It amazes me when old market darlings take dramatic declines, and no one wants to own them at fractions of what they paid before,” Price recently wrote on Real Money.
Ollie’s Bargain Outlet Holdings is now in this category for price.
Ollie’s went public on July 16, 2015, at a price of $16 per share. The market-based opening trade came in at $22.68, almost 42% higher. Price noted that all of the company’s major business metrics grew rapidly. By May 2019, traders had pushed the stock as high as $103, which is 52.6 times forward earnings.
Ironically, fiscal 2019 was the first year of slower earnings per share growth. OLLI closed on December 30, 2019 at $69.25, while still recovering 35.3 times EPS back.
The Covid pandemic that broke out in March 2020 slammed OLLI along with almost everything else. OLLI briefly dipped to $28.83 on March 15, 2020. But they rebounded strongly. In early June 2020, shares had already rebounded to $112.60.
Ollie’s actually benefited from government-mandated store closures related to Covid. Because they sell groceries, they were granted “essential” status and allowed to remain open, Price noted. Customers could go to Ollie’s and buy anything from the stores, including general merchandise in most states.
Ollie’s posted its all-time highest net profit margins while racking up FY2020 EPS of $3.16 for the year ended Jan. 30, 2021. “Shares hit an all-time high north of $123 on this news.”
Now, however, OLLI stock has taken another hit, plunging below $40 at the time of writing. And Price prepares to pounce again. “It has rarely been cheaper, in terms of valuation,” he said.