Discount retailer Ollie's could be a big winner going forward, according to Wells Fargo. Analyst Edward Kelly upgraded Ollie's to overweight from equal weight, saying in a Monday note to clients that the stock could be a "coiled spring" now that inventory and supply chains have normalized for the company. "We believe the stock could be on the cusp of a meaningful move higher," Kelly wrote. "The story has admittedly been ugly, but we expect momentum to turn positive in the coming quarters. The close-out buying environment, which we believe has been the company's biggest sales issue, looks poised to improve." Wells Fargo increased its price target on Ollie's to $65 per share from $45. The new price target is nearly 52% above where shares closed on Friday. Wells Fargo expects Ollie's' sales to improve after a tough time during the pandemic without many discounts on high-quality items on the company's flyers, Kelly said, noting the company could be going from "the worst of times to (just maybe) the best of times)." "We believe the company's flyer is an important driver of traffic. It has been poor for a while, but the recent version could signal improving sales momentum to come," the note said. A tougher consumer environment could also support Ollie's discount model later this year. To be sure, there could be some risk in the stock despite the significant upside potential, analysts said. Overly optimistic guidance or slowing store growth could hurt the firm in Wells Fargo's downside scenario. Shares for Ollie's jumped 4.4% in Monday premarket trading. —CNBC's Michael Bloom contributed to this report.
Mark Butler, CEO, Ollie's Bargain Outlet
Scott Mlyn | CNBC
Discount retailer Ollie's could be a big winner going forward, according to Wells Fargo.