Five Below is One of America’s Fastest Growing Retailers

Stock (Symbol)

Five Below (FIVE)

Stock Price

$39

Sector

Retail & Travel

Data is as of

April 11, 2016

Expected to Report

Jun 1 – Jun 6

Company Description

Five Below, Inc. (Five Below) is a specialty retailer offering a range of merchandise for teen and pre-teen customer. FIVE offers a range of products, all priced at five dollars and below, including select brands and licensed merchandise across a range of categories, including Style, Room, Sports, Tech, Crafts, Party, Candy and Now. FIVE operates 366 locations across 21 states. The Company’s stores have over 4,000 stock-keeping units (SKUs) across a range of categories. The Company’s product groups include leisure, fashion and home, and party and snack. Leisure includes items, such as sporting goods, games, toys, tech, books, electronic accessories, and arts and crafts. Fashion and home includes items, such as personal accessories, ‘attitude’ t-shirts, beauty offerings, home goods and storage options. Party and snack includes items, such as party and seasonal goods, greeting cards, candy and other snacks, & beverages. Source: Thomson Financial

Sharek’s Take

Five Below (FIVE) is one of the fastest growing retailers in America. Five Below is a dollar store for kids and teenagers and sells merchandise such as toys, games, party items, sports gear, clothes, candy & things for a kids room — all between $1 and $5. 2015 was a great year on all fronts for Five Below. Profits grew 18% on 22% sales growth with a 4% increase in all-important same store sales, the 39th consecutive qtr of positive comps. In 2015 the company opened a new distribution center on the East Coast (which hampered profits) and ended the year with 437 stores, up from 366 in 2014. In 2016 the company plans to open 85 more and move into Louisiana, Wisconsin, Minnesota and Oklahoma. Expanding to California in 2017 will help push the company towards its goal of 2000 stores nationwide. Management has a goal of 20% profit growth long-term. At $39, FIVE sells for 30x earnings. My Fair Value is 32x earnings, which equates to $51 in 2017, 30% higher than the recent quote. The stock has solid long-term appeal as it could quadruple in size in the long-run.

ne Year Chart

We just went through a terrible stock market correction (crash?) in January & February and this was one stock which held up well. By the end of the qtr FIVE had delivered 26% profit growth 24% sales growth and the stock broke out at $36 on the news. Now around $40, FIVE is close to my 2016 Fair Value of $42. Profit growth estimates for the next 4 qtrs are: 25%, 31%, 25% and 21%. The company has been met profit estimates or come in a penny higher for five straight qtrs.

air Value

Five Below’s P/E has risen from 26 last qtr to 30 this qtr, which has dampened its upside to my 2016 Fair Value from 25% to just 6%. Still, upside to 2017 is a solid 30%, which would be great for a year-and-a-half investment.

Bottom Line

Five Below could quadruple its store count in the next 5-to-10 years, and perhaps the stock could go up four-fold as well. I feel eventually another dollar store will look to acquire the company. Profits have 27% grown a year since the company went public, yet the stock has moved sideways. That’s a good thing, as the stock might have some catching up to do. Five Below ranks 17th of 34 stocks in the Growth Portfolio Power Rankings. It’s not in the Aggressive Growth Portfolio as upside to 2016’s Fair Value isn’t that great.