Stock Analysis

Is Now The Time To Look At Buying Five Below, Inc. (NASDAQ:FIVE)?

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NasdaqGS:FIVE
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Five Below, Inc. (NASDAQ:FIVE), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQGS. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at Five Below’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Five Below

Is Five Below still cheap?

Five Below is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Five Below’s ratio of 25.99x is above its peer average of 6.66x, which suggests the stock is trading at a higher price compared to the Specialty Retail industry. But, is there another opportunity to buy low in the future? Since Five Below’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Five Below generate?

earnings-and-revenue-growth
NasdaqGS:FIVE Earnings and Revenue Growth June 1st 2022

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Five Below's earnings over the next few years are expected to increase by 66%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in FIVE’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe FIVE should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on FIVE for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for FIVE, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Five Below as a business, it's important to be aware of any risks it's facing. When we did our research, we found 2 warning signs for Five Below (1 is concerning!) that we believe deserve your full attention.

If you are no longer interested in Five Below, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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