Five Below’s (NASDAQ: FIVE) stock price struggled in recent quarters as consumer headwinds and competition cut into the growth outlook.
However, those days are behind it as the influence of new CEO Winnie Park begins to show.
The takeaway in late March is that this company is on track to sustain double-digit growth, is working to improve traffic and margin, and has plans to increase its leverage with an accelerating store.
Here’s a look at five reasons why its stock price will increase in Q2 2025 and possibly gain 100% by the year’s end.
1. Business Is Good for Five Below Despite the Headwinds
Five Below’s business is good despite the headwinds and growth outlook reduction they caused. The Q4 2024 results show this company growing by 3.7% despite the tough comp versus a 13-week quarter. The only bad news is that the growth was as expected, albeit industry-leading at 7.8% adjusted. That compares well to low-price competitors like Target (NYSE: TGT) and TJX Companies (NYSE: TJX), which contracted during the quarter and Walmart (NYSE: WMT), which grew by only 5%.
More importantly, the company’s experience margin pressures but far less than forecasted by the analysts tracked by MarketBeat. The net result is that adjusted operating and net income fell by 1.5% and 0.7%, respectively, leaving adjusted EPS down about 0.6% year-over-year (YOY) but 320 basis points above the consensus versus the as-expected top-line figure.
2. Five Below Builds Leverage With Accelerating Store Count
Five Below’s results are mixed with a negative store comp offset by a rising store count. The comp fell by 3% due to competition, rising prices, and consumer pull-back but was offset by a 14.7% increase in year-end store count. The salient detail is that store growth offsets consumer weakness and builds leverage for the consumer rebound, which may begin for retailers as early as the 2nd half.
Many analysts believe that tariff-induced headwinds will ease by then, aligning with the outlook for their “transitory” impact on inflation as proclaimed by the FOMC. Looking ahead, the company plans to accelerate new store openings, including the addition of 50 in FQ1.
3. Guidance Is Sufficient to Sustain the Fortress Balance Sheet
Five Below’s guidance was as mixed as the Q4 results. However, the EPS target is below forecasts and not above, which could impact the share price if not for the cash flow and balance sheet outlook. The company may not produce the earnings quality forecasted by optimistic analysts but will produce sufficient cash flow to sustain its growth plans and fortress balance sheet.
The company targets $4.26 billion in annual revenue, aligning with analysts' forecasts, suitable for a 10.1% YOY increase and likely a cautious target. Among the opportunities for Five Below is to fill a void left by Big Lots bankruptcy.
4. Five Below Has a Solid Gold Balance Sheet
Five Below has a fortress balance sheet that sustains the company’s business plans while it returns capital to shareholders and improves shareholder value.
Highlights at the end of 2024 include increased cash, current, and total assets partially offset by increased liability and virtually no long-term debt. Shareholder equity increased by 14%, while the share count fell by 0.8%. The share count isn’t falling aggressively but is declining annually and is a bullish force for the market.
5. Five Below Trades at a Deep Discount to Peers
Five Below’s stock price decline realigned it with a more attractive valuation.
Trading at only 15x earnings in 2025, the company is significantly undervalued compared to peers and expected to grow at a double-digit pace starting in 2027.
In this scenario, the stock falls below 10x by 2030, suggesting its price could rise by 100% to 200% by then.
As it is, analysts expect only a 30% upside at the consensus, and the revision trends suggest that less is probable.
Regarding the institutions, they are taking advantage of Five Below’s deeply discounted price and bought at a nearly 2-to-1 pace versus sellers in Q1.
They own nearly 100% of the stock.
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The article "5 Reasons Five Below’s Stock Price Is Heading Higher This Year" first appeared on MarketBeat.
