FBR: Five Below 'Great Company But Fully Valued Stock'

In a report published Thursday, analysts at FBR Capital Markets initiated coverage of

with a Market Perform rating and a price target of $36. Five Below's growth prospects are driven by its increasing store base and positive comps driving above-average revenue growth. The company's operating margins have continued to improve via management initiatives, like better inventory management and leveraging of its cost structure. In the report FBR Capital Markets noted, "Customers love shopping at FIVE stores, store productivity is strong, the balance sheet remains healthy, and management has been successful at keeping competition at bay." "However, perfect execution has seemed to be just out of reach recently, due largely to a combination of unfavorable weather, imperfect execution, and trend dependence. These fundamental factors, coupled with a very full valuation, have resulted in FIVE shares trading erratically, but largely sideways, over the past two years," the analysts pointed out. "Over the past two years (104 weeks), FIVE shares have made weekly moves in excess of +/–3% 58 times (56% of weeks) and made +/–5% weekly moves 35 times (34% of weeks)," the analysts added. Although the company continues to have sound fundamentals, the investors are not being adequately rewarded. The company's shares are fully valued when compared with similar high growth retail players.