Fidget Spinners Help Five Below Plow Away Estimates

Stock (Symbol)

Five Below (FIVE)

Stock Price

$57

Sector

Retail & Travel

Data is as of

October 22, 2017

Expected to Report

Nov 29

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. Source: Thomson Financial

Sharek’s Take

Fidget spinners are the hot toy this year. The three-pronged ball-bearing devices that you can rotate between your fingers and feel the gears. These things sell for around $3 to $4 each at Five Below (FIVE), a dollar store for kids and teenagers. Five Below sells merchandise such as toys, games, party items, sports gear, clothes, candy & electronics for between $1 and $5 each. Fidget spinners were a “notable contribution” to FIVE’s results last qtr, which blew away analyst estimates. Since going public in 2012, FIVE has grown profits 27% per year. Last qtr the company delivered 67% profit growth. This is one of the last great expansion stories in the dollar chain field. During the past three years Five Below has grown its store count from 366 to 437 and 522 (19% per year). In 2017 the company is on pace to open 100 more locations, with a long-term goal of 2000 stores nationwide. New stores are approximately 8000 sq ft, cost $300,000 in cash to open, deliver sales of $1.6 million in the first year and payback the initial investment in less than one year. Management sees sales growth of 20% a year through 2020, and analysts have an Estimated Long Term Growth Rate of 22% per year on the stock. But I feel profits could continue to grow 25% a year. Five Below is one of the smaller growth stories that fly under the radar of many investors. My guess is the stock could double in value every three years, then get acquired by a larger dollar chain.

One Year Chart

Last qtr’s results were exceptional. Sales growth of 29% and same store sales up a whopping 9%. Profits were expected to climb 44% but instead surged 67%. The only thing that wasn’t great is management didn’t up guidance (but said there was strong momentum that should carry over). Profit growth Estimates for the next 4 qtrs are 30%, 20% , 20% and 7%. The P/E has risen from 27 last qtr to 34 this qtr, which makes the stock high. But on the other hand the stock did break out, so that’s a positive on the momentum side.

Fair Value

My Fair Value is a P/E of 32, which puts the stock slightly above my Fair Value price of $53. But this stock fluctuates a lot, so I wouldn’t necessarily say it’s high.

Bottom Line

Five Below has been thriving for years, but the stock was stuck in a long jagged pattern because the P/E was so high in the past. But since 2015 the P/E has been around 32 to 24 and that’s where the stock is now. Overall I imagine this stock doubling every few years with the end result being acquired by a larger dollar store chain. FIVE ranks 23rd of 34 stocks in the Growth Portfolio Power Rankings.