Five Below Stock Looks Like a Bargain Again

Stock (Symbol)

Five Below (FIVE)

Stock Price


Retail & Travel
Data is as of
January 17, 2022
Expected to Report
March 15
Company Description
fivebelow_frontFive Below, Inc. is a specialty retailer offering a range of merchandise for teen and pre-teen customer. The Company offers an assortment of products, including select brands and licensed merchandise across a range of categories, including Style, Room, Sports, Tech, Create, Party, Candy and Now. Its product groups include leisure, fashion and home, and party and snack. Its 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, and beverages. Source: Thomson Financial
Sharek’s Take
David SharekFive Below (FIVE) stock looks like a good bargain again. And the reason is, the P/E has fallen from an average of 45 the past four qtrs to a very reasonable 29 this qtr. The P/E was 43, 46, 42, and 47 the past four qtrs. That’s a reasonable price for a company that’s growing profits maybe 25% a year. Now, the stock seems very undervalued, should continue to be a solid selection in the world of growth stocks.

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 $5.55 each. During the past six years (2014-2020) Five Below has grown its store count from 366 to 437, 522, 625, 750, 900 and 1020. Last qtr, the company opened 52 new stores across 40 states. In total, FIVE has 1173 stores opened as of last qtr, around a fivefold increase from when they went public in July of 2012. The plan is to open 170 to 180 stores this year and end 2021 with 1,200 stores. Management has plans to potential reach 2500 stores nationwide, eventually, which would be around double where it is now. Five Below also added self-checkout to 250 more stores, bringing the total to 60% of the chain. New stores are approximately 9000 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. Ecommerce is growing significantly faster than stores. The company is now offering same-day delivery with Instacart. Last qtr, the company made partnership with PayPal for Venmo payment solutions and these are now available in all stores.

Here’s a run-down of the full product mix of the company:

  • Style: Accessories includes socks, sunglasses, jewelry, scarves, gloves, hair accessories, athletic outfits and more.
  • Room: Consist of items such as lamps, posters, frames, pillows, candles and related items.
  • Sports: Consist of sport balls, team sports merchandise and fitness accessories including weights and gym related items.
  • Tech: Consist of items such as cell phones, computers and electronic items.
  • Create: Craft activity kits.
  • Party: Party goods such as decorations, gag gifts.
  • Candy: Consist of branded items that appeal to tweens and teens.
  • Now: Seasonally-specific items used to celebrate and decorate for events.

Here are some stats from last qtr:

  • Profit growth of 19%, beating estimates of -19%.
  • Sales growth of 28%.
  • Same store sales up 15%.

Five Below has been one of the best retail concepts around, as same store sales have increased 15 consecutive years. The company has no debt and has been buying back shares. FIVE plans to buy back $100 million in stock each year until 2024. The stock has a solid Estimated Long Term Growth Rate 39% per year, which is one of the fastest rates of any stock in our universe. I think this company has the ability to grow profits 25% to 35% per year, and the stock looks like a bargain. FIVE is part of the Growth Portfolio.

One Year Chart
We are in a wicked Bear Market for growth stocks. FIVE was hanging in there, but has recently been one of the remaining market leaders to take a bow. I like how the stock seems to be hitting support here.

This stock has a P/E of 29 which is very reasonable. The P/E was 43, 46, 42, and 47 the past four qtrs. You can see what the P/E has been like during the years here .

The Est. LTG jumps from 42% to 46% and it’s outstanding. I used to think of this stock as a 25% grower. Now, I’m thinking it has the ability to grow profits 35% a year.

Notice qtrly profit Estimates are poor. That’s because results the past 4 qtrs have been great as COVID-19 closures hurt a lot of other retailers, causing many to close, and giving Five Below more market share.

Earnings Table
Last qtr, Five Below posted 19% profit growth and beat estimates of -19%. Profits were exceptional in the year-ago period — up 100% — and there were tough comparisons last qtr. I’m fine with the “slower” sales growth. Revenue increased 28%, year-on-year. Same-store sales grew 15%, over last year. Total number of transactions grew 14% while customer visits increased 1%.

Sales results were enhanced by strong multiple product trends, such as back-to-school backpacks, stationary items, and art supplies, Halloween candy, and gaming products. Five Below saw increased customer traffic from both in-store and digital channels, increase in customer purchase, growth in new and repeat customers, and continued growth in e-commerce penetration. Higher freight costs were more than offset by occupancy leverage due to strong sales. That’s a relief as higher logistics costs are hampering a lot of companies now.

Annual Profit Estimates increased this qtr. Note 2021 profit estimates have jumped from $4.22 to $4.9 the past four qtrs. This is a premier growth stock,

Qtrly Profit growth estimates for the next 4 qtrs are 13% , 1%, 10%, and 40%. Notice the year-ago figures in the top half of the Earnings Table.

Fair Value
My Fair Value P/E stays at 45. I moveed it down from 55 to 50 to 45 the past three qtrs.

There’s 53% upside to my 2022 Fair Value of $265. And I imagine the company will continue to up profit estimates.

But, in a Bear Market, valuations (P/Es) get reduced. I imagine this stock could trade for 35x profits, or 206 a share. That still equates to a $206 stock, 19% above yesterday’s price of $173.  

Bottom Line
Five Below (FIVE) has been thriving for years, but the stock stayed under the radar until it broke out at $55 in September 2017. I’ve owned the stock since November 13, 2015 (bought for clients at $34).

With excellent sales growth, a P/E of only 29, and a franchise that’s proven to be a winner the past five years, this stock seems ripe for a big comeback once the stock market bottoms. 

FIVE moves up from 13t to 9th in the Growth Portfolio Power Rankings. In the end, I imagine the company will eventually be acquired by a larger dollar store chain. 

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