"This is the coolest store I have ever seen," said my pre-teen
son as we left a discount retailer recently. We were loading up
on summertime sports gear, and the store was packed with
consumers purchasing all sorts of products.
#-ad_banner-#I was struck by how bright and clean the store
was -- and particularly by its prices for well-made backyard
sporting gear. I was able to purchase an entire suite of gear for
what two basketballs would cost at the local chain sporting goods
Sure, the basketballs and backyard gear from the sporting
goods chain may have the endorsements of professional athletes
and nice packaging, and perhaps be made from slightly better
materials -- but who cares? Most of this stuff will probably be
worn out or lost in a year or two anyway.
The discount retail store was also stocked with a wide
assortment of toys, snacks and portable electronic accessories.
Everything was reasonably priced, and the shopping experience was
enjoyable. This company looked to me like it could be a great
investment, so I took a closer look.
This company is in the same category as other discount
retailers such as
Dollar General (NYSE:
Dollar Tree Stores (Nasdaq:
Family Dollar Stores (NYSE:
. I've visited all three of these chains, but I haven't been
The product mixes and layout of those stores gave me the
impression that they were targeting older shoppers. On the other
hand, I would consider this company a new model for discount
retailers: quality products targeted at young families and
presented in a bright and welcoming way.
Five Below currently operates more than 300
stores and expects to open 62 new locations.
The company I'm referring to is
Five Below (Nasdaq:
, a Philadelphia-based chain of over 300 discount stores. What
first struck me about the company's stock is its huge short ratio
of 39.1%. A high short ratio is often a bullish sign, with the
potential for a short squeeze to be triggered by positive news.
However, FIVE's lack of insider ownership (just 0.03%) definitely
raises some concern.
Five Below delivered incredible numbers for the fourth quarter
and fiscal 2013. Fourth-quarter revenue of $212 million was up
22% from a year ago, beating analyst estimates by 2 percentage
points. Fueling this increase was store growth of 25% during the
quarter, to 304 units. For the year, sales rose 28% from the
previous year, to $535.4 million.
Fiscal 2014 projections are solid with 62 new locations
expected to be opened and a 4% increase in same store sales. CEO
and founder Thomas Vellios made clear that the company is
building a foundation for future growth by investing in people,
technology and infrastructure.
As you can see from the daily price chart below, FIVE was
knocked lower between December and mid-February. This selling
came on the heels of growth concerns. Price meandered in a
4-point channel until the strong earnings report pushed price
sharply higher into the $42 to $44 range. FIVE is above both the
50- and 200-day simple moving average and using the 200-day
simple moving average as support.
Risks to Consider:
Make no mistake about it, retail is risky. Consumers have the
ultimate choice of a global marketplace, thanks to the Internet.
Retailers must compete on convenience, service, product mix and
price. In addition, the lack of insider ownership in FIVE may be
a red flag. Always use stop-loss orders and diversify when
Action to Take -->
I love Five Below for 2014 if shares break $44. My strategy is to
buy shares on a break of $44, placing the initial stop-loss order
at $41 and a 12-month price target of $54, representing nearly
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