Five Below Continues to Be a Marvelous Retail Stock

Stock (Symbol)

Five Below (FIVE)

Stock Price

$66

Sector

Retail & Travel

Data is as of

January 30, 2018

Expected to Report

Mar 20

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

Five Below (FIVE), a dollar store for kids and teenagers, continues to be a marvelous retail stock. Five Below is a dollar-store concept for kids and teens that sells merchandise such as toys, games, party items, sports gear, clothes, candy & electronics for between $1 and $5 each. 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. Five Below should be able to triple it’s store count long-term, which in my book means the stock has the opportunity to triple as well. 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 Last qtr I criticized analysts having an Estimated Long Term Growth Rate of 22% per year on the stock, which was too low. This qtr they bumped it up to 28%. And although the stock is up big from a year-ago, it’s still reasonably priced with a P/E of 29. I see big things in store for this little chain, and my Fair Values are $82 for this year and $98 for next.

One Year Chart

Profits surged 80% last qtr and blew away estimates of 30%. WOW! Sales rose 29% with 9% same store sales growth. These are great numbers! Estimates got hiked too, with 2018 numbers rising from $1.97 to $2.33. Profit growth Estimates for the next 4 qtrs are 30%, 40% , 20% and 17%. The P/E falls from 34 last qtr to 29 this qtr as I’m looking ahead to 2018 estimates now.

Fair Value

My Fair Value is rising from a 32 P/E to 35. This company is firing on all cylinders right now. And the stock is very reasonable.

Bottom Line

Five Below has been thriving for years, but the stock just got noticed for being a good one last year. Even though FIVE is up big, there’s still great upside for both the short-term and long-term as well. Eventually I envision this stock getting bought out by a bigger dollar store player. FIVE ranks a solid 19th in the Growth Portfolio Power Rankings.