Shares of discount-retail chain Ollie's Bargain Outlet Holdings (OLLI 0.88%) jumped on Monday, after a prominent analyst offered some bullish commentary. This starkly contrasts with the song analysts were singing just weeks ago. And it's likely why Ollie's stock was up about 15% as of 2 p.m. ET.
On March 23, Ollie's reported financial results for 2021. Net sales were down 3% from 2020 despite an increase in the total number of Ollie's locations. And net income fell 35% to $158 million. These declines led the analyst community to downgrade its outlook for Ollie's stock.
However, Wells Fargo analyst Edward Kelly is now upping their price target for Ollie's stock. According to The Fly, Kelly believes shares can reach $65 each. This price target was about a 50% premium to where shares traded at Friday's close. And it's still a roughly 33% increase from where shares trade right now.
I happen to share Kelly's bullish optimism for Ollie's stock. However, I would stop short of putting a price target or a time frame on my own outlook. In the short term, stocks can be unpredictable. But an increase in a company's earnings tends to lead to an increase in the stock price over time. Ollie's operates a consistently profitable business and has plans to open hundreds of new locations in coming years. Therefore, Ollie's should experience long-term earnings growth, in my opinion.
One area of concern in the near term is Ollie's rising inventory. As of the end of 2021, inventories increased 32% year over year to $467 million. The problem is some of this excess inventory could be holiday related, as management said it didn't get some of its holiday merchandise on time. Selling holiday inventory out of season is difficult and could cause the company to take a small hit as it decides what to do with this situation.