Why These Analysts Say Buy Five Below For Cheap After Light Guidance Sparks Sell-Off

Five Below Inc FIVE, a specialty teen retailer that sells all items for $1 to $5 a piece, saw its stock dip after its second-quarter comp increase fell short of expectations, and the company's third quarter sales guidance implies a lower rate of growth.

Following the selloff, several Wall Street analysts recommended investors buy the stock on the dip.

MKM Partners

Patrick McKeever of MKM Partners stated in a research report that he isn't "too concerned" as the company remains "among the best in retail," as evidence by its 41 consecutive quarters of same-store sales growth, strong margin performances, earnings per share and sales growth profiles.

The analyst suggested that Five Below is positioned to generate annual earnings per share growth of around 25 percent, 20 percent footage growth, 95-100+ percent new store productivity, 3 percent same-store sales and a modest margin expansion.

Shares are Buy rated with a $60 price target.

Related Link: MKM Calls Five Below "Among The Best In Retail," Says Buy On Weakness

RBC Capital Markets

Scot Ciccarelli of RBC Capital Markets argued in a research report that Five Below recently reported "another solid" quarter, and investors should view the recent pullback as an opportunity to become "aggressive buyers."

Ciccarelli highlighted two main points to support his bullish stance:

• New stores remain "the company's economic engine" as it added 33 stores in the recent quarter which increased its store count by 18 percent from a year ago. In addition, non-comp stores are generating around 85 percent of the company's top-line growth.
• Five Below's balance sheet "remains clean" with $95 million in cash and equivalents and zero debt. In fact, the analyst is "impressed" with the company's ability to generate free cash flow despite its nearly 20 percent unit growth.

Shares are Outperform rated with a $54 price target.

Jefferies

Daniel Binder of Jefferies also made the bullish case for Five Below's stock in a research report. The analyst similarly highlighted Five Below's "strong" new store opens operating at 97 percent of total average store volumes.

Binder also noted that Five Below's comp guidance for the third quarter does imply a sequential deceleration, but it is still in line with recent performance on a two-year comp basis.

Shares are Buy rated with a $55 price target.

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