Five Below Has A Good Concept And Great Growth, But Little Upside At Current Price

Shares of Five Below Inc FIVE have gained 36 percent year-to-date. The stock now appears “priced to perfection,” Goldman Sachs’ Stephen Tanal said in a report. He assumed coverage of the company with a Neutral rating and a price target of $42, which implies 3 percent downside.

Good Concept

“We like the Five Below store concept for its high financial returns, quick payback period, and consistent four-wall results and see years of square footage growth – the linchpin of FIVE’s algorithm – ahead of the company,” analyst Tanal wrote. He added that a capacity analysis based on youth population suggests that Five Below would be able to meet or exceed its target of 2,000 stores.

Great Growth

The company continues to generate robust earnings growth, although growth is decelerating from the earlier elevated levels, Tanal pointed out.

Trading At Full Valuation

Five Below’s valuation “looks full to us on any metric – including modeling FIVE’s algorithm out through 2020, applying relatively healthy retail/growth multiples, and discounting the results back to today,” the analyst commented.

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