What happened
Ollie's Bargain Outlet (OLLI -0.12%) shareholders beat the market this week, with shares rising 17% through Thursday trading compared to a 1% drop in the S&P 500, according to data provided by S&P Global Market Intelligence. The rally pushed Ollie's stock back above the broader market so far in 2022 and was sparked by growing confidence on Wall Street about the retailer's growth prospects.
So what
Ollie's, which maintains a regional network of 436 discount stores across half of the U.S., received a head-turning stock upgrade on Monday from an analyst who believes shares could soar over the next year. The sell-off in the wake of the retailer's fourth-quarter earnings report was overdone, according to the investment firm, making the stock a relative bargain.
Now what
It's not hard to see why Ollie's stock fell in late March after the company announced that comparable-store sales fell compared to the same period in 2019 before the pandemic began disrupting the business. A growing base of stores couldn't keep overall revenue rising, either.
Management cited a few major challenges over the holiday selling period, including inflation and supply chain disruptions, which should ease over the coming quarters. But the buy thesis for this stock rests in part on Ollie's ability to raise its retailing game in 2022.
Image source: Getty Images.
To that end, executives are launching a store remodeling program that they hope will result in higher customer traffic and increased average spending. Follow those metrics over the next few quarters for signs that the investments are working.
In the meantime, investors might want to simply watch this stock from the sidelines. While Ollie's could enjoy significant growth as it expands to cover more of the country, it first must demonstrate that it can reliably expand sales at its existing locations.
