Credit Suisse Downgrades Five Below After 63% Rally: 'We See Risk-Reward As Balanced'

Five Below Inc FIVE shares have been on a tear, prompting Credit Suisse revisit its bullish stance on the discount retail stock. 

The Analyst

Analyst Judah Frommer downgraded Five Below from Outperform to Neutral while maintaining a $110 price target, which was recently hiked from $96.

The Thesis

Five Below shares have risen about 63 percent year-to-date, with the rally coming partly in response to first-quarter earnings and second-quarter guidance that was above low expectations, Frommer said in a Friday note. (See the analyst's track record here.)

The run-up has carried the stock less than 2 percent below Credit Suisse's one-year price target, the analyst said. This, along with insider sales worth $10 million, pushed the sell-side firm to the sidelines, he said. 

Five Below is one of the most differentiated concepts in retail and operates the quickest new store return model that Frommer has seen, the analyst said. 

"That said, we see risk-reward as balanced at these levels given the stock's material outperformance and back-half comp acceleration that we believe is now priced into the shares." 

The potential for slowed square footage growth beyond what Credit Suisse has modeled; upstart online competition; and the impact from international trade headwinds are risks to the price target, Frommer said. 

Five Below buys about one-third of its goods overseas, the analyst said. 

Better-than-expected comp performance in the coming quarters could pose upside risk to the Neutral rating, according to Credit Suisse. 

The Price Action

Five Below shares were falling 4.77 percent to $102.78 at the time of publication Friday. 

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Photo by Ildar Sagdejev/Wikimedia.