FIVE Stock Study (4-15-24)

I recently did a stock study on Five Below, Inc. (FIVE) $157.48. Previous studies are here and here.

M* writes:

     > Five Below Inc is a specialty value retailer offering merchandise targeted
     > at the tween and teen demographic. The Company’s edited assortment of
     > products includes select brands and licensed merchandise.

Over the past decade, this medium-size company has grown sales and earnings at annualized rates of 20.5% and 23.0%, respectively. Lines are mostly up, straight, and parallel except for EPS declines in ’21 (inclusive dates 2/1/2020 – 1/31/2021 as FY ends 1/31) and ’23. PTPM leads peer and industry averages while ranging from 7.8% (COVID in ’21) to 12.9% (’22) with a last-5-year mean of 11.1%.

Also over the past decade, ROE leads peer and industry averages despite falling from 34.5% (’15) to 21.7% (’24) with a last-5-year mean of 22.7%. Debt-to-capital is lower than peer and industry averages with a last-5-year mean of 53.9%.

FIVE has no long-term debt (leases and uncapitalized rentals, only), a Current Ratio of 1.7, and a Quick Ratio of 0.6. Value Line gives a B++ rating for Financial Strength (“A” six months ago), and M* assigns a “Narrow” (“Wide” six months ago) Economic Moat

With regard to sales growth:

• YF projects YOY 13.6% and 16.0% for ’25 and ’26, respectively (based on 19 analysts).
• Zacks projects YOY 13.4% and 16.2% for ’25 and ’26, respectively (9 analysts).
• Value Line projects 16.1% annualized growth from ’24-’29.
• CFRA projects 13.8% YOY and 15.0% per year for ’25 and ’24-’26, respectively.
• M* offers a 2-year annualized ACE of 15.8%.

I am forecasting below the range.

With regard to EPS growth:

• MarketWatch projects 13.9% and 15.9% per year for ’24-’26 and ’24-’27, respectively (based on 24 analysts).
• Nasdaq.com projects 19.3% YOY and 18.7% per year for ’26 and ’25-’27 [9/9/3 analyst(s) for ’25/’26/’27].
• Seeking Alpha projects 4-year annualized growth of 19.7%.
• YF projects YOY 11.8% and 19.0% for ’25 and ’26 (19) along with 5-year annualized growth of 19.3%.
• Zacks projects YOY 12.0% and 19.3% growth for ’25 and ’26 (9) and 5-year annualized growth of 20.6%.
• Value Line projects annualized growth of 15.2% from ’24-’29.
• CFRA projects 13.3% YOY and 16.3% per year for ’25 and ’24-’26, respectively, and a 3-year CAGR of 7.0%.
• M* projects 5-year annualized growth of 25.0%.

I am forecasting below the long-term-estimate range (mean of five: 20.0%). My initial value will be ’24 EPS of $5.41/share.

My Forecast High P/E is 32.0. Excluding ’21, high P/E over the past decade ranges from 39.5 in ’16 to 54.4 in ’15 with a last-5-year mean of 53.6 and a last-5-year-mean average P/E of 40.1. I am forecasting below the range (close to current P/E).

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 20.2 in ’18 to 36.4 in ’15 with a last-5-year mean of 26.6. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $119.00 is default based on $5.41/share initial value. This is 24.4% less than the previous close and 17.7% less than the 52-week low.

These inputs land FIVE in the BUY zone with a U/D ratio of 5.0. Total Annualized Return (TAR) is 17.2%.

PAR (using Forecast Average—not High—P/E) of 13.3% is solid for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 195 studies (my study and 83 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 14.9%, 16.3%, 37.4, and 25.3, respectively. I am lower across the board. Value Line’s projected average annual P/E of 30.0 is lower than MS (36.4) and mine (32.0).

MS high / low EPS are $10.89 / $4.84 versus my $10.88 / $5.41 (per share). My high EPS is in agreement while MS appears to be using low EPS from ’23 rather than ’24 released about one month ago. Value Line’s high EPS is $11.00: in agreement with the two others.

MS Low Stock Price Forecast (LSPF) of $126.60 implies a Forecast Low P/E of 26.2: more than the above-stated 25.3. MS LSPF is 3.4% greater than the default $4.84/share * 24.4 = $122.45, which results in more aggressive zoning. MS LSPF is also 6.4% greater than mine.

My TAR (over 15.0% preferred) is in good agreement with the 17.3% from MS. MOS seems robust in the current study since it agrees nicely with MS data seemingly based on ’23 annual EPS.

Regarding valuation metrics, PEG is 1.3 and 1.7 per Zacks and my projected P/E, respectively: the latter being overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is slightly undervalued at 0.73.

FIVE is a BUY under $176 and with a forecast high price around $348, TAR meets my 15% criterion right now.