The Street Debates Whether Five Below's Stock Is A Bargain

Value retailer Five Below Inc FIVE reported first-quarter results Tuesday that were highlighted by a 52% decline in comps and a wider-than-expected loss of 91 cents per share due to the COVID-19 pandemic.

Yet some Street analysts remain bullish on the stock on the basis of an encouraging outlook.

The Five Below Analysts

Wells Fargo analyst Edward Kelly maintains an Overweight rating on Five Below's stock with a price target lifted from $115 to $120.

BofA Securities analyst David Buckley maintains at Buy, price target lifted from $120 to $140.

KeyBanc Capital Markets analyst Bradley Thomas maintains at Sector Weight.

UBS analyst Michael Lasser maintains at Neutral, price target lifted from $104 to $114.

Wells Fargo: 'Ugly' Quarter For Five Below

Five Below's first-quarter report was "ugly," as comps fell more than the 47.9% decline expected and earnings were worse than the negative 34 cents per share the Street was expecting, Kelly wrote in a note.

Gross margins compressed more than 22 percentage points and SG&A margin deleveraged almost 20 percentage points.

The analyst said re-opening trends "matter much more to the stock" and the retailer remains an attractive growth company with a "not overly rich" valuation.

BofA: Five Below Back On Track

Five Below encouragingly said second-quarter comps to date were 8% higher at reopened stores, with the comp contribution split evenly across physical and digital, Buckley wrote in a note.

So far, the company has 90% of stores open and continues to target 100 to 120 new store openings this year, the analyst said.

Five Below's management deserves credit for shifting its product assortment toward health care and personal care items and technology items in high demand, he said.

The company also shifted its marketing priorities toward the digital channel to better attract new customers that are more likely to spend more money per store, according to BofA.

KeyBanc: Five Below In Defensible Segment

Five Below boasts a strong balance sheet, and its free cash flow for 2020 remains in positive territory despite the pandemic, Thomas wrote in a note.

The company also has $139 million in cash on the balance sheet with zero debt, the analyst said.

Five Below also operates in a "defensible" segment with a unique value proposition that can't be duplicated elsewhere, he said.

As such, initial positive trends in the second quarter should continue as more stores reopen, although there is still risk to traffic trends if the pandemic continues to impact consumer behavior, according to KeyBanc.

UBS: Five Below's Valuation Reflects 'Healthy' Outlook

Five Below is taking advantage of near-term trends that are likely to normalize, Lasser wrote in a note.

For exmaple, the retailer said part of its momentum is due to the government's stimulus checks — and consumers are spending more in stores but coming less often.

The recent strength appears to be a "solid barometer" of how customers will shop at Five Below given a unique and value-oriented product assortment, the analyst said.

The stock is trading at 31 times 2021 estimated PE versus a 33 times NTM three-year average, which already discounts a recovery in the business, the analyst wrote, according to UBS.