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Forget Target & Other Retailers and Buy Five Below Stock?

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Five Below FIVE outpaced Target TGT, Walmart WMT, its industry, and fellow discount power Dollar General DG over the last year. The deep-discount retailer’s sales have climbed steadily as its appeal to its consumer base grows.

FIVE trades about 6% off its highs heading into the release of its Q4 fiscal 2020 financial results on March 17. Five Below also boasts some solid fundamentals that might make it worth buying.

FIVE’s Pitch

Five Below claims to offer “trend-right, high-quality products loved by tweens, teens and beyond.” The Philadelphia-based firm sells a range of products, for between $1 to $5—though some do cost more—under categories such as sports, tech, candy, books, and many others.

Five Below operates over 1,000 stores across 38 states. And the discount retailer doesn’t necessarily compete directly against Dollar General since its offerings are more non-essential goods geared to younger customers.

Like all successful retailers, Five Below has improved its e-commerce offerings and currently offers same-day delivery options for roughly 300 stores. Five Below’s business is relatively unique and desirable to many, given that toys and other kids’ products can be pricey.

Outlook

Last quarter, FIVE’s revenue climbed by 26%, with comparable sales up 13%. The third quarter marked a return to its recent growth levels for the three-month period ended on October 31, after its Q2 sales popped 2%. Investors should note that Five Below’s first quarter sales tumbled 45% amid coronavirus-related closings.

The company also continues to open new locations at an impressive clip. Five Below’s revenue has climbed by between roughly 20% to 30% for the last seven years, having posted even larger growth previously.

Zacks estimates call for FIVE’s Q4 FY20 revenue to climb 25% to help lift its adjusted quarterly earnings by 8%. Its fiscal 2020 sales are still projected to pop over 5% to $1.94 billion despite the earlier coronavirus impact, though its EPS figure is still projected to sink 30% to $2.11 a share.

Peeking ahead, Five Below’s 2021 earnings are projected to soar 92% on 30% stronger revenue that would see it pull in $2.5 billion. The company’s overall earnings revisions picture has also improved to help it land a Zacks Rank #2 (Buy), alongside a “B” for Momentum in our Style Scores system.

Bottom Line

As we mentioned at the outset, FIVE shares have outpaced many of its peers over the last year, up roughly 100% vs. TGT’s 69% and its industry’s 50% average. The nearby chart showcases that this trend stretches out over the past five years, up 370%. Five Below has even outpaced Amazon AMZN in the last three years.

FIVE closed regular trading Wednesday at $183.38 a share, or 6% below its mid-February records. The stock also trades at a 25% discount to its own year-long highs in terms of forward sales at 3.9X. And it sits below neutral levels in terms of RSI at 45. Therefore, investors might want to take a chance on the niche discount retailer that’s committed to expansion.

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Target Corporation (TGT) : Free Stock Analysis Report

Amazon.com, Inc. (AMZN) : Free Stock Analysis Report

Walmart Inc. (WMT) : Free Stock Analysis Report

Dollar General Corporation (DG) : Free Stock Analysis Report

Five Below, Inc. (FIVE) : Free Stock Analysis Report

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