Teal LindeFive Below IncFIVEPARTIAL BUYNov 11, 2019

It is fully recovered from the sell-off but others are struggling. He exited their position.

The dollar stores have been lifting lately and FIVE is doing the best. It has 20% revenue growth this year. Also it is growing its store base at 9% but this is difficult to sustain. The new CEO is doing things differently. Also they are becoming popular in Korea. Trades at 35X earnings so is getting expensive. Margins are not back to where they were but if they get there he would exit.

It recently announced results stronger than expected. The co-founder is stepping down which is good for the changes being made. They now have a relationship with Uber so their products can get to their customers faster than with Amazon, maybe within an hour.

It reports Wednesday. How much longer can they put a lid on prices, driven up by tariffs? That said, he expect a good quarter, because they got a lot of merchandise before tariffs. But he's worried about guidance--they may need to raise prices.

It is part of the dollar store category. Last year it cut its store growth count from 15% to 9% so there is a change in the growth profile. He has taken some profits but is looking to exit at some point. There is a certain amount of saturation.

It was a fast  growing company that slowed down quickly. It has changed its CEO and is focusing on making improvements. The store count is growing less but at 9% this year. It didn't blame the economy for its problems and gave a good self-reflection with its workers.

It's a fast-growing company that slowed abruptly. US dollar stores got hammered last year. FIVE reacted by changing their CEO, and lowered store growth rate from 15% annually to 9%. It's still worth holding. They didn't blame the economy, but themselves.

If Trump slaps tariffs on Chinese goods, the dollar stores will suffer badly. FIVE sources 60% of its goods from China.

It is in their portfolio and has been the biggest disappointment this year. Management in a conference call knows where they dropped the ball and identified issues that are fixable. There could be an industry issue too.

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.
Unlock Premium - Try 5i Free

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.
Unlock Premium - Try 5i Free

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

Have 1,500 stores in the U.S. with more ahead to grow 15% annually near term. Can internally finance without adding debt.

They just delivered a strong quarter and shares jumped while dollar stores have delivered bad numbers -- Dollar Tree and Dollar General. Their EPS beat and raised full-year guidance.