Is This Discount Retailer a Buy Heading Into 2022?

Discount retail is a business that generally works in good economies and bad and is also naturally resistant to e-commerce competition. With that in mind, Fool.com contributors Jason Hall, Danny Vena, and Matt Frankel discuss discount retailer Ollie's Bargain Outlet Holdings(OLLI -0.48%) in this Fool Live video clip, recorded on Dec. 13 and whether it's a smart investment now. 

Jason Hall: The motto is "Good stuff cheap," right? And they've built a business over the past 30 years of being like, the go-to to distributors, to go to retailers, to go to manufacturers with excess inventory, of high-quality items, buying it up, getting it in their stores, and reselling it. Now if you look at their stock price over the past year, it's really taken a beating. It's down more than 35% over the past year from the high. It's down well over half. Revenue fell in the quarter, earnings fell sharply, they're having some serious problems getting inventory right now, guys.

The global supply chain thing that's letting a lot of other retailers sell everything they have, even the stuff they normally would've sold to Ollie's, Ollie's can't buy it because everybody's keeping every bit of inventory that they get. Their comps are actually down, not just year over year, but they're down from 2019, so same-store sales, revenue in stores that were opened in 2019, is down 1.5%. So that really emphasizes how much of a problem they're having getting revenue.

Here's the thing: I continue to really believe in their long-term strategy, because that long-term strategy has worked for years. They have been able to historically get operating margins between 12% and 15%. I think they can get back to there once they get back to having access to inventory. The next six months is probably going to be pretty ugly for them. They've already said the fourth quarter is going to be tough. I expect it's probably going to be second quarter next year before their inventory issues really start to get turned around.

But again, you look at the long-term performance, that's why I rated Ollie's the middle of the pack of this group [10 "holiday shopping" stocks]. Clearly, Matt, Danny, you guys disagreed here a little bit. 

Danny Vena: I was looking at the list here. I actually rated Ollie's lower, I rated it, let's see here, 10 actually. That was my lowest rating, and the reason that I rated it so low is for many of the reasons Jason talked about. If you look at the stock chart over the past year, it reflects the difficulties that the company has been having.

But I'm going to take it a step further. This is what it looks like over the past year, but this is what it looks like over the past three years. You see, this is quite a volatile stock for being a discount retailer. The stock has at times been up over 40%, 45%, 50%. It's been down over 40%. I was shocked at how volatile it was. But for me, discount retailers, they tend to do really well when there is economic uncertainty or during a recession, and there is a core group of shoppers that are in there on a regular basis.

But again, I don't see this one as having a really vast opportunity. I think they will probably do well. I don't know, based on what I have seen, whether or not they will beat the market over the long term. I didn't find the argument compelling.

Matt Frankel: I like the discount retail model, I ranked this more toward the middle of the pack. I just think it has a lot of staying power if the economy gets bad and stays bad. But then on the other hand, this isn't Costco (COST -0.12%). It's not that type of discount retailer that's established and going to make money no matter what. It is very much a growth company at the moment. As Jason pointed out, we're ranking holiday shopping stocks, and this one has very little chance of having a great holiday quarter. It's off-putting in the context of this.