Ollies Bargain Outlet Holdings (NASDAQ:OLLI) has been falling like a stone to start 2020. Down more than 18% in just the past month, the stock started to stumble after reporting its third-quarter earnings in December.
Although the stock was initially up 12% and the results weren’t bad, it’s seen nothing but red ever since. With many retailers reporting underwhelming earnings of late, many investors may be heading for the exits and shedding retail stocks, including Ollies.
The sharp selloff in Ollies stock has sent the stock back down into oversold territory, with a Relative Strength Index (RSI) of just 27. RSI measures a stock’s gains and losses, typically over a period of 14 days, and when the losses heavily outweigh the gains, the number falls. Once it gets below 30 it’s a sign that the selling has been excessive and that a rally may be in the cards.
At a price-to-earnings ratio of 26 and a price-to-book multiple of more than three, Ollies is not a value buy. And given the risk that’s in the retail industry, the danger is that the stock could proceed to fall even further down in price.
Ollies has been oversold multiple times over the past year and this, unfortunately, is nothing new for the stock. It is only a few dollars away from hitting a new 52-week low and investors may want to wait before buying shares of Ollies.
However, its business is still profitable and the company has recorded a profit in each of the past four quarters. While there’s some risk here, this latest sell-off looks like it could be due to an over exaggeration and I wouldn’t be surprised to see the stock bounce back from this later this year.
