Investing in fundamentally strong stocks currently trading near their 52-week lows can be a profitable strategy. However, it's important to focus on shares of companies with sound fundamentals. More critically, those companies should have potential catalysts that could lead to a rebound in their stock prices. These might include the launch of new products or solutions, a change in go-to-market strategy, and cost reduction initiatives, among others.
Considering these factors, Five Below (FIVE) and Dynatrace (DT) are two stocks that are trading near their 52-week lows, but have the potential to rebound. Let's explore the catalysts that could power these stocks higher. However, investors should have a willingness to weather short-term fluctuations for long-term gains.
Five Below Stock
Five Below (FIVE) is a specialty value retailer offering a broad range of merchandise catering to tween and teen customers. Most of the company's products are priced at $5 and below. It operates through 1,605 stores (as of May 4) and its e-commerce platform.
Five Below stock is down about 49.2% year-to-date, and is trading near its 52-week low of $106.21. This drop reflects the pressure on consumers’ discretionary spending due to broader economic challenges.
During the Q1 conference call, the company’s leadership highlighted that consumers are becoming more selective, prioritizing essential items, and being cautious with discretionary spending. Additionally, the company has faced increased shrinkage, which further impacted its performance and share price.
Despite the softer demand from low-income consumers, Five Below has reported positive comparable sales among higher-income cohorts. This trend indicates that some higher-income consumers are trading down to Five Below for better value, which could enhance the company’s performance in the upcoming quarters.
In addition, the retailer implemented strategies to address sales weakness and offset shrink, including pricing tests, marketing initiatives, and cost reduction. The company has launched a pricing test in about 100 stores to gauge the impact of price reductions on sales. It's also working on optimizing the organization's cost structure, focusing on operating expenses and capital spending.
Five Below’s aggressive store expansion strategy is a significant growth driver. The company aims to more than double its store count by the end of 2030 and open approximately 230 new stores in 2024. The productivity of new stores remains high, further supporting revenue growth and market presence.
In summary, Five Below’s expanding store base, focus on trendy and affordable merchandise, strategic pricing, cost reduction initiatives, and solid balance sheet position the company well for a strong rebound. This is reflected in analysts’ bullish recommendations for Five Below stock.
Among the 21 analysts covering FIVE, 15 have “Strong Buy” ratings, one has a “Moderate Buy,” and five recommend a “Hold.”
The average price target is $157.95, indicating an upside potential of approximately 45.8% from current levels.
Dynatrace Stock
Dynatrace (DT) is a software intelligence company, offering solutions for monitoring and optimizing application performance.
Its stock took a hit, and is now trading near the 52-week low of $42.94, mirroring the continued deceleration in its annual recurring revenue (ARR) growth rate.
The company expects its fiscal 2025 ARR growth rate to be between 15% and 16%, reflecting a further slowdown. This shows that the company faces an uncertain economic backdrop and incremental headwinds in the coming quarters.
Despite the short-term challenges, Dynatrace’s fundamentals remain strong. The company is experiencing increased demand for large strategic deals, securing an impressive 18 seven-figure wins in the previous quarter. The growing number of significant customer wins is expected to significantly contribute to long-term growth and potentially lead to a rebound in its share price. Additionally, Dynatrace is seeing a strong interest in its new offerings, an encouraging sign for future performance.
To capitalize on growth opportunities, Dynatrace is enhancing its go-to-market strategy. The company is focusing its sales efforts on the Global 500 and strategic enterprise accounts. This will help maximize productivity and ARR potential. Further, it is also expanding its international reach and sector specialization, aiming for deeper penetration within its installed base.
While the company is evolving its go-to-market strategy to drive customer adoption and support its growth, it is focusing on optimizing costs and improving efficiency and profitability.
Thanks in part to these positive factors, analysts are generally bullish about Dynatrace stock. Among the 30 analysts covering DT, 22 have “Strong Buy” ratings, one recommends “Moderate Buy,” and seven have a “Hold.”
The average price target for DT stock is $58.69, which indicates an upside potential of approximately 31.2% from current levels.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
