We came across a bullish thesis on Five Below, Inc. (FIVE) on Substack by Excelsior Capital. In this article, we will summarize the bulls’ thesis on FIVE. Five Below, Inc. (FIVE)’s share was trading at $111.93 as of Dec 9th. FIVE’s trailing and forward P/E were 23.34 and 22.22 respectively according to Yahoo Finance.
A young boy happily shopping in a children’s apparel retail store.
Five Below Inc. has established itself as a unique player in the discount retail space, yet its recent struggles and investor skepticism have placed it under the radar. Initially perceived by some as just another dollar store, Five Below’s branding and appeal are distinct, targeting a younger demographic with its fun, engaging shopping experience. While its price performance over the last few months, similar to peers Dollar General and Dollar Tree, has been disappointing, the company’s recent third-quarter results and long-term positioning suggest a compelling investment opportunity.
Five Below has seen its stock price drop significantly, reflecting investor disappointment over its growth prospects. Despite being categorized among other dollar stores, Five Below has never fully aligned with its peers. The company’s price-to-earnings (P/E) ratio had previously reflected high growth expectations, peaking at 88.8 in 2020, but the company’s recent struggles have prompted a reevaluation of those expectations. The P/E ratio now stands at 18.9, signaling a significant shift in market sentiment. Key challenges include disappointing comparable store sales, reduced earnings forecasts, and margin pressures, compounded by strategic missteps such as a failed pricing strategy and CEO turnover in 2024.
However, Five Below has shown resilience, particularly in the third quarter of 2024, where it surpassed sales expectations with a 15% year-over-year increase. The company opened 82 new stores, marking an 18% growth in store count, and achieved success with trend-right products across several categories, from tech to seasonal items. This growth underscores Five Below’s potential to thrive by consistently offering fresh and appealing products to its target audience.
Unlike its dollar store counterparts, Five Below has carved out a niche by appealing to kids, teens, and young adults with a treasure-hunt shopping experience. The company avoids the high-volume, low-margin structure that defines many dollar stores, instead focusing on offering fun, low-cost items that are difficult for online retailers to replicate. This has created a brand moat that has garnered a loyal customer base and sets Five Below apart in the crowded retail landscape. Its focus on items priced around $5, with some products priced even higher, differentiates it from other discount retailers.
Financially, Five Below remains robust, with adjusted earnings per share significantly outperforming forecasts. The company is on track to achieve solid net sales growth, and its aggressive store expansion plans continue to hold promise. With its unique positioning, a strong brand moat, and a growing store count, Five Below is poised to regain investor confidence and represents an attractive investment opportunity in the retail sector.
Five Below, Inc. (FIVE) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 36 hedge fund portfolios held FIVE at the end of the third quarter which was 31 in the previous quarter. While we acknowledge the risk and potential of FIVE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FIVE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.