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 you suspect will become undervalued. But often enough, you just buy into a stock that the market has overlooked.
This the case with Paul Price and Ollie’s Bargain Outlet Holdings OLLI.
“It amazes me when previous market darlings suffer dramatic declines, and then nobody wants to own them at fractions of what they paid previously,” Price wrote recently on Real Money.
Ollie's Bargain Outlet Holdings is now in that category for Price.
Ollie's came public on July 16, 2015, priced at $16 per share. The opening market-based trade came at $22.68, almost 42% higher. Price noted that all of the company’s major business metrics grew rapidly. By May of 2019, traders had pushed the shares up to $103, representing 52.6-times forward earnings.
Ironically fiscal 2019 was the first year of slower earnings per share growth. OLLI closed on Dec. 30, 2019 at $69.25, while still fetching 35.3-times trailing EPS.
The Covid pandemic that erupted in March 2020 slammed OLLI along with almost everything else. OLLI fleetingly plunged to $28.83 on March 15, 2020. But they rallied back sharply. By early June of 2020 shares had already rebounded to $112.60.
Ollie's actually benefited from Covid-related government-imposed store closures. Because they sell food products they were granted "essential" status and allowed to remain open, Price noted. Customers could go to Ollie's and buy anything in the stores including general merchandise in most states.
Ollie's posted its highest net profit margins ever while racking up fiscal 2020 EPS of $3.16 for the fiscal year ended Jan. 30, 2021. "The shares carved out an all-time high north of $123 on that news.”
Now, however, OLLI stock has taken another beating, dipping below $40 at time of writing. And Price is preparing to pounce again. "It has rarely been cheaper, valuation-wise," he said.
