What happened

Shares of Ollie's Bargain Outlet Holdings (NASDAQ:OLLI) sold off 18.8% in January, according to data from S&P Global Market Intelligence. January's drop capped off a terrible year, as shares finished down more than 30%. It seems there was more bad news in 2019 than the stock was able to overcome.

Comparable sales are down for the year, causing Ollie's to miss earnings expectations. Most tragically in November, the company had to deal with the unexpected loss of its beloved founder and CEO, Mark Butler. The uncertainty continues to drive investors away.

A frustrated man has a down stock chart behind him.

Image source: Getty Images.

So what

Ollie's Bargain Outlet was once a hot growth-stock story because of its rapid unit expansion. The company has 345 locations in the eastern U.S. and has grown units 14% through the first three quarters of 2019. 

Double-digit unit growth is fine when comparable sales are also growing. Ollie's had positive comparable sales every year going back to 2013, including a 5.4% comparable-sales gain in 2018. But so far in 2019, the company's comparable sales are down 0.8%. Original guidance called for 1% to 2% comparable-sales growth.

Falling comparable sales erode investor confidence for two reasons. First, Ollie's attributes the comp-sales fall to the "record performance" of new stores. Translation? The new stores started really strong, but after a year they aren't doing as well anymore. Second, Ollie's is guiding for more than 950 locations long term. If comparable sales fall as the store base grows, it's fair to doubt whether that target is attainable.

Now what

Despite a falling stock and failing investor confidence, Ollie's isn't slowing down unit growth. In its third-quarter earnings call, management reaffirmed that it's opening 47 to 49 new locations in 2020. That will be good for about 14% unit growth, probably leading to double-digit revenue growth. Management also sees comparable sales and profit margins improving. 

At 25 times trailing earnings, Ollie's stock has never been cheaper. If the company can back up its 2020 predictions, January's sell-off would be a buying opportunity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.