Sarah Travers
Investors tracking Five Below (FIVE 0.03%) have been witness to a notable downturn in 2024, with shares plummeting by 24% since the year began. While this may seem alarming, astute investors recognize that such dips often unveil hidden opportunities, particularly in growth stocks.
Dissecting Investor Disappointment
Following the release of its fiscal 2023 fourth-quarter results, Five Below found itself in the eye of the storm, disappointing investors who had anticipated more robust figures. Despite showcasing a commendable 19% growth in revenue and earnings per share (EPS), the company fell short of consensus estimates, triggering a rapid decline in its stock price.
Expanding Horizons
Zooming out beyond the quarterly numbers unveils a fascinating narrative for Five Below’s future. Anchored by an ambitious growth strategy, the company is aggressively expanding its footprint, with plans to open 2,300 and 3,500 stores by 2026 and 2030, respectively.
This expansion has already borne fruit, propelling Five Below’s store count from 552 to 1,544 locations nationwide over the past seven years. Such growth has been a primary driver behind the company’s impressive revenue and EPS upticks, averaging annual rates of 17.9% and 15.3% respectively over the past five years.
Growth vs. Value
The current downturn in Five Below’s stock price begs the question: growth or value? While growth-focused investors may see the decline as an opportune moment to buy into the company’s promising trajectory, value investors might exercise caution.
Trading at a price-to-earnings multiple of 30, Five Below’s valuation stands at a significant premium compared to broader market indices such as the S&P 500, potentially dissuading investors who prioritize stocks trading at lower multiples.
Charting Five Below’s Future: Navigating Investment Waters
The recent decline in Five Below’s stock price prompts a nuanced evaluation of its investment potential. While the company’s long-term growth prospects remain robust, underpinned by its ambitious expansion plans and historical performance, its current valuation may give pause to some investors.
As the market continues to digest the company’s quarterly results and assess its future trajectory, investors must tread carefully, considering the potential risks and rewards before making any investment decisions.
