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Investors Are Very Enthusiastic About Five Below

Stock (Symbol)

Five Below (FIVE)

Stock Price

$51

Sector
Retail & Travel
Data is as of
July 25, 2016
Expected to Report
Aug 31 – Sept 6
Company Description
fivebelow_frontFive 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
David SharekInvestors are very enthusiastic about Five Below (FIVE). Five Below is a dollar store for kids and teenagers. The company sells merchandise such as toys, games, party items, sports gear, clothes, candy & things for a kids room for between $1 and $5. This is one of the last great expansion stories in the dollar chain field, as growth opportunity for Five Below is still vast. In 2015 Five Below ended the year with 437 stores, up from 366 in 2014. Management’s goal is 2000 stores nationwide. In 2016 the company is on pace to open 85 more locations and move into Louisiana, Wisconsin, Minnesota and Oklahoma then expand into California in 2017. Five Below has the wind at its back as a strong dollar makes foreign-made products cheaper to buy. Also, low oil prices make it cheaper to have them delivered to the stores. This stock has been great, but during the last three qtrs the stock’s P/E has risen from 26 to 30 and now 39. After the recent run, I feel this stock has gotten a little ahead of itself, but the long-term future still is very bright.
One Year Chart
FIVE_2016_Q2

Last qtr Five Below increased sales 25% and profits 50%. The company opened 21 stores to increase its total to 458. The profit number looks YUGE but around 75% of the company’s profits are done in the qtr ending Jan 31st, which was 2QtrsAgo. Last qtr FIVE made a profit of just 12 cents, vs. 8 cents a year ago, and beat the street by 2 cents. Qtrly profit Estimates are as follows: 31%, 25%, 19% and 25%. FIVE has beaten the street by a penny or two the last 3 qtrs. Overall everything looks great outside the P/E of 39 which is rich. 2016 profit estimates have stayed between $1.30 and $1.32 for the last year.

Fair Value
FIVE_2016_Q2_PHDuring the last three qtrs Five Below’s P/E has risen from 26 to 30 and now 39, which has dampened its upside to my 2016 Fair Value from 25% to 6% and now -10%. This stock has gotten a little ahead of itself. In 2015 the company opened a new distribution center on the East Coast (which hampered profits).
Bottom Line
FIVE_2016_Q2_10yrFive Below could quadruple its store count in the next 5-to-10 years and investors have definitely taken notice –especially with the strong dollar and low oil letting profit growth come easy. But a P/E of 39 makes this stock rich, especially considering that 2016 profit estimates haven’t been jumping. That being said I’m not going to sell out now as there is great growth opportunity long-term. FIVE ranks 24th of 38 stocks in the Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

24 of 38

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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