Valued at a market cap of $9 billion, Five Below (NASDAQ: FIVE) stock has disappointed investors in the last six months. At the time of writing, FIVE stock is down 32% from all-time highs, allowing investors to buy the dip.
Despite the recent pullback, Five Below has returned 265% in the last five years and over 500% since April 2012. Let’s see why FIVE stock should be part of your shopping list now.
The bull case for FIVE stock
Five Below announced its fiscal Q4 of 2022 (ended in January) results earlier this week and reported sales of $996.4 million which were below estimates of $1.01 billion. Its adjusted earnings per share stood at $2.49 compared to estimates of $2.48 per share. The company’s net sales rose by 16% year over year while earnings were up 13% in Q4 of 2022.
The CEO and President of Five Below, Joel Anderson stated, “We were very pleased with our fourth quarter results that capped off a record year. We delivered sales growth in line with our expectations against the difficult comparison to last year's stimulus-fueled comparable sales increase of 13.8%, and despite the impact of weather in January.”
Five Below is optimistic about its performance in fiscal 2023 as the management team continues to navigate a dynamic and inflationary macro-environment in a post-pandemic world.
Five Below outlined its long-term vision called Triple-Double. Here, it will increase its store potential in the United State from 2,500+ to 3,500+, tripling its store count. It also plans to double sales and more than double earnings through fiscal 2025.
The company has forecast to open 1,000 stores in this period which includes the opening of 375 to 400 new stores in the next two years. It confirmed the management team is dedicated to delivering robust growth while executing against key strategic initiatives within product, experience, and supply chain verticals.
The bear case for Five Below
Dollar stores are always a popular option for buyers, making them even more important when inflation levels are near record highs. While Five Below is expanding aggressively, it has struggled to meet consensus estimates.
In Q1 of fiscal 2023, Five Below forecast sales between $644 million and $658 million compared to estimates of $686 million. Its adjusted earnings forecast between $0.54 per share and $0.62 per share was also below estimates of $0.89 per share.
Further, in fiscal 2023, it forecast sales between $3.16 billion and $3.26 billion and adjusted earnings between $5.19 and $5.70 per share. Comparatively, analysts forecast fiscal 2023 sales at $3.33 billion and earnings at $5.86 per share.
The company attributed its less than impressive outlook to inflation and pandemic-driven supply chain disruptions in construction which in turn will delay store openings.
Five Below expects same-store sales to flat or rise by 3% in 2022. Comparatively, analysts forecast same-store sales to rise by 2.9% in the next 12-months.
FIVE stock: Valuation and more
Five Below opened 17 new stores in the last 12-months, ending fiscal 2022 with 1,190 stores in 40 states. It represents an increase in stores of 16.7% compared to the end of Q4 of fiscal 2020.
FIVE stock is currently valued at a forward price to sales multiple of 2.71x and a price to earnings ratio of 28x which is quite reasonable given its growth estimates.
Wall Street has a 12-month average price target of $227 which is 42% above its current trading price.