Five Below (NASDAQ:FIVE) Rises To New Highs But Wait To Buy It

Five Below Is An On-Trend Value For Consumers

Shares of Five Below (NASDAQ:FIVE) are trading at 75X this year’s earnings and nearly 40X next years. That's not really a bargain but you have to consider the fact this company is growing and by double digits. The value that drives Five Below is in its product line. The company has secured itself a place in the post-pandemic market place with its on-trend style and the value it gives to consumers. The Q3 results prove in no uncertain terms that consumers like what they findand are coming back for more.

Business Accelerates For Five Below

The rebound story continues to evolve and the latest twist is acceleration. Many of the pandemic winners are reporting not only strong demand but an acceleration from the 2nd quarter. Five Below is no exception. The company reported $476.1 million in net revenue which is 12% better than the 2nd quarter, up 26.3% from last year, and beat the consensus estimate by 710 basis points.

The company’s strength was driven by a combination of expansion and organic growth. The company added a net of 36 new stores during the quarter bringing the total to 1,020 while comps came in at 12.8%. The analysts were expecting closer to 5.3%. Moving down to the margins, margins were a bit mixed but come out in favor of the company on the bottom line. The gross margin came in at 31.7% and missed consensus by ten basis points while the net margin rose to 5.1% and beat by 190 basis points.

The best news of this great report is that revenue strength more than carried through to the bottom line. The combination of better than expected revenue and wider net margins results in GAAP and adjusted EPS well above the consensus. Both operating and net income rose in the range of 100% on a YOY basis putting GAAP EPS at $0.36 and adjusted at $0.32 or better by $0.16 and $0.12 respectively.

Five Below And The Analysts Respond

 The company opted not to offer any guidance but the tone of the report and management’s commentary are very positive. Regardless, the company is heading into the busiest shopping season of the year with positive momentum and dwindling competition.

“In this high volume fourth quarter, we are focused on providing a safe and efficient shopping experience. In addition to several changes we made in-store, such as adding expanded checkout capabilities, we are now offering a same-day delivery option for about 300 stores. The holiday selling season is off to an early and strong start, and COVID-related uncertainty notwithstanding, we believe we are well-positioned to delight our customers with amazing Wow stocking stuffers and gifts at incredible values,” says Joel Anderson, president, and CEO.

The Technical Outlook: Five Below Surges To New High, Shares Fall Back

Shares of Five Below surged nearly 10% on an intraday basis following the Q3 report. That’s the good news. The bad news is that price action fell back from the new high before the close setting what is now near-term resistance at least. Price action may continue to move higher from here but a sideways consolidation is more likely. The indicators are still bullish but retreating from recent highs and consistent with a market peak. Longer-term, investors should watch the $160, $155, and $150 levels for signs of support and time entries around them.

The analysts liked what they saw in the report. A full 9 upgrades/price target updates were released following the release putting the consesus target near $170. The high price target is held by Craig Halum, it's $197, and implies more than 20% upside for this stock.