Will the Five Below Rally Move it to a New All-Time High?

Key Points

• Five Below stock is reversing trend after reporting mixed earnings. 
• The report paints a different picture of the consumer than the one forecast by Dollar General.
• If the company can make good on its expansion strategy, a new all-time high is in sight.

Five Below, Inc. NASDAQ: FIVE bucked the trend among retail stocks even after posting a mixed first quarter 2023 earnings report. The company also delighted investors by upping its guidance for the next quarter as well as the full year. FIVE stock has pulled back sharply twice in 2023 but may be ready to charge forward to a new all-time high.  

The Five Below earnings report was particularly newsworthy because it came on the heels of a disappointing earnings report from Dollar General, Inc. NYSE: DG one of the leaders among the dollar stores. FIVE stock fell in solidarity with other dollar stocks as investors began to fear the worst was at hand. 

Those fears appear to be delayed, at least temporarily. By all accounts, this was a solid earnings report. While the company did post a slight miss on revenue, the $726.25 million in sales was 13% higher on a year-over-year (YOY) basis. That was identical on a percentage basis to the company’s earnings which were 13% higher than the same quarter in 2022. Same store sales were higher, and the company guided higher for the next quarter as well as for the rest of the year.  

Similar Results but Different 

One of the interesting things that came out of the company’s 10-Q filing was that the company attributed their growth in same-store sales to an increase in the number of transactions as opposed to the average dollar value of the transactions.  

This is opposite of Dollar General which reported a higher dollar value for the items purchased, but fewer items being purchased overall.  

Overlaying the two earnings reports next to each other, you get a mixed picture of the health of the consumer. And that may be why shares of FIVE stock are settling down after spiking sharply higher since the report.  

Analysts are Relatively Quiet 

Despite the strong earnings report the Five Below analyst ratings on MarketBeat are relatively quiet. Three analysts have changed their price target for FIVE stock. Two lowered their targets and one raised it. However, all of the new price targets are higher than the stock’s consensus price.  

What to Do with FIVE Stock? 

FIVE stock formed a head-and-shoulders pattern heading into earnings. The question for traders is whether the sell-off followed by positive earnings results is enough to reverse the trend. One bullish argument is that the stock got firm support at around $170. That coincided with the year-to-date low set in early January.  

But from a fundamental standpoint, FIVE stock is objectively overvalued. At 38x earnings, the price-to-income ratio is well above the sector average of around 22x. And it’s more than double the P/E ratio of Dollar General. 

However, Five Below is so far successfully executing a strategy to expand its number of stores. The company says it is on track to exceed its goal of opening 200 stores in 2023. The company is also executing its “Five Beyond” store-in-store concept with items priced slightly above $5. The company said it converted approximately 250 stores in the first quarter and plans to covert over 400 in 2023.  

With all that said, if FIVE stock finds support at the December 2022 lows, it’s not hard to see a path for the stock to make the consensus estimate of $211.22 or even the 52-week high, which was set in August 2022.