• If you are wondering whether Ollie's Bargain Outlet Holdings is starting to look attractively priced, the recent share performance gives you a useful entry point to think about value.
• The stock closed at US$81.77, with returns of a 5.5% decline over the last week, 14.9% decline over the last month, 26.5% decline year to date and 24.9% decline over the past year. This is set against a 23.7% gain over three years and 3.2% gain over five years.
• These mixed share price moves have kept Ollie's Bargain Outlet Holdings on many investors' watchlists as they reassess what a reasonable price looks like now. Recent coverage has focused on how the discount retailer is positioned within the US retail sector and what that might mean for sentiment toward the stock.
• Right now, the company scores a 3 out of 6 valuation score. This raises the question of what different valuation methods say about the stock and whether there is an even better way to think about value that will be covered at the end of this article.

Approach 1: Ollie's Bargain Outlet Holdings Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a stock could be worth by projecting future cash flows and discounting them back to today using a required rate of return.

For Ollie's Bargain Outlet Holdings, the model used is a 2 Stage Free Cash Flow to Equity approach, built on cash flow projections in $. The latest twelve month free cash flow is about $165.9 million. Analysts provide explicit estimates for several years, with Simply Wall St extrapolating further to build a 10 year path of free cash flow that reaches a projected $433.0 million in 2035.

After discounting each of these annual cash flows back to today and adding them up, the DCF model points to an estimated intrinsic value of about $83.85 per share. Compared with the recent share price of $81.77, that implies the stock is around 2.5% undervalued. This is a relatively small gap and suggests the current price is close to the modelled fair value.

Result: ABOUT RIGHT

Ollie's Bargain Outlet Holdings is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: Ollie's Bargain Outlet Holdings Price vs Earnings

For a profitable company, the P/E ratio is a useful check on how much you are paying for each dollar of earnings. It reflects what the market is willing to pay today, while growth expectations and risk help shape what a normal or fair P/E should be for that stock.

Higher expected earnings growth or lower perceived risk can support a higher P/E ratio, while slower growth or higher risk usually point to a lower one. Ollie's Bargain Outlet Holdings currently trades on a P/E of 20.7x, compared with the Multiline Retail industry average of 19.4x and a peer group average of 33.3x.

Simply Wall St's Fair Ratio is a proprietary estimate of what the P/E ought to be, given factors such as earnings growth, profit margins, industry, market cap and company specific risks. Because it pulls these elements together in one number, it can be more tailored than simply lining the stock up against peers or the broad industry. For Ollie's Bargain Outlet Holdings, the Fair Ratio is 17.5x, which is below the current P/E of 20.7x, suggesting the stock is OVERVALUED when viewed through this lens.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Ollie's Bargain Outlet Holdings Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as simple stories you create about Ollie's Bargain Outlet Holdings that tie your view of its business, revenue, earnings and margins to a financial forecast and a fair value. These Narratives sit within an easy tool on Simply Wall St's Community page that lets you compare that fair value with the current share price, see how it stacks up against other investors' Narratives, and watch it refresh automatically when new news or earnings arrive. One investor might build a Narrative closer to the higher analyst price target of US$157.0 with stronger long term assumptions, while another could lean toward the lower target of US$120.0 with more cautious expectations. Both can clearly see how their story translates into numbers and a decision about whether the stock looks expensive or cheap to them.

Do you think there's more to the story for Ollie's Bargain Outlet Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.