Stock price when the opinion was issued
Its recent results announce revenue guidance growth of 1% and earnings per share by 8%. However the stock dropped 30% along with negative sentiment towards the retail sector. It has plans to grow its store base by 15% this year which amounts to 225 stores. Its products are fairly inexpensive. Buy 17 Hold 6 Sell 0
(Analysts’ price target is $205.90)The momentum is highly negative, however, we like FIVE at an 18x to 20x forward earnings valuation range. At current levels of 22.5x forward earnings, FIVE is very close to this range and below historical levels. We are hesitant to add more here, but the stock could be bottoming and there is future value if FIVE can execute its plan.
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Sentiment toward the company is fairly poor right now and toward the discretionary sector more widely. FIVE remains a strong company fundamentally with a long runway for growth via store openings but we might give them one more quarter for a bit more clarity/visibility before adding to the name.
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An interesting retail concept in the US, sort of focused in between more apparel than dollar stores, but more on apparel and consumables. At one point this was your highflying, high growth type business. What attracted him was that as the multiple de-rated, some of the drivers that were leading to the slowdown were not permanent structural issues at the time. They are caught between where people want to shop today and where they wanted to shop 5 years ago. Not cheap enough for him to want to take a position.