Investors in Five Below (FIVE 0.03%) have seen a rollercoaster ride in 2024, with shares dropping a significant 24% since the start of the year. While this downturn might raise alarm bells for some, it’s also presenting an intriguing opportunity for those with a keen eye for growth stocks.
Disappointing Investors
Following the release of its fiscal 2023 fourth-quarter results, Five Below faced a wave of disappointment from investors. Despite reporting a commendable 19% growth in both revenue and earnings per share (EPS), the company failed to meet consensus estimates. This unexpected turn of events prompted a sharp decline in share prices, leading many to question the company’s trajectory.
Focusing on the Bigger Picture
However, zooming out beyond the immediate quarterly results reveals a compelling long-term story for Five Below. The company’s ambitious growth strategy is centered around aggressive expansion, with plans to open 2,300 and 3,500 stores by 2026 and 2030, respectively.
This strategy has already borne fruit, with Five Below boasting a significant increase in its store count over the past seven years, from 552 to 1,544 locations nationwide. Such expansion has been a driving force behind the company’s impressive revenue growth, with revenue and EPS increasing at compound annual rates of 17.9% and 15.3% over the past five years.
Do You Care About Growth or Value?
The current downturn in Five Below’s stock price raises a fundamental question for investors: growth or value? While growth-oriented investors may see the dip as a buying opportunity, considering the company’s proven track record and ambitious expansion plans, value investors may exercise caution.
Five Below currently trades at a price-to-earnings multiple of 30, a significant premium compared to broader market indices like the S&P 500. This valuation may deter value investors who prioritize stocks trading at lower multiples.
Navigating the Path Forward: Evaluating Five Below’s Prospects
The recent decline in Five Below’s stock price presents investors with a complex decision. While the company’s long-term growth prospects remain promising, evidenced by its robust expansion strategy and historical performance, its current valuation may give some investors pause.
Ultimately, the decision to buy or sell Five Below shares will depend on individual investment styles and preferences. As the market continues to digest the company’s quarterly results and assess its future prospects, investors will need to carefully weigh the potential risks and rewards before making any decisions.
