This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Five Below: Discount Retailer's Shares Are Pricey

NEW YORK ( TheStreet) -- The most exciting IPO this year has been that of retailer Five Below (FIVE - Get Report), which went public about five weeks ago.

Shares rose 53% on the first day of trading and are up nearly 90% over the $17 offering price, ranking Five Below as the second best performing IPO in the past three months.

It was also somewhat of a breath of fresh air for an IPO market that has been stung by the Facebook (FB) debacle.

Five Below stores have become a phenomenon in our house and a frequent stop for our teenage children. I have not seen such a buzz about another retailer with the possible exception of Costco (COST) (but that's mainly due to the abundance of free samples that are handed out at Costco stores).

Truth be told, I like going into Five Below stores as well and often wonder what it would have been like if the chain had been around when I was a teenager. I'm sure I would have spent a lot more of my hard earned lawn-mowing and paper route money.

Interestingly, Five Below was founded the same team behind Zany Brainy, once a publicly traded chain of educational toy stores that filed for bankruptcy in 2001. It happens. Zany Brainy was a great concept and another chain that we frequented. But the retail business is difficult at best, and the competition is intense.

Now, I don't believe that Five Below is destined to go the way of Zany Brainy or that it is a fad like Green Mountain Coffee (GMCR), SodaStream (SODA) and Facebook. I believe the company is here to stay and has solid growth prospects ahead.

But I am not a fan of Five Below's shares at these levels. That may sound strange given my positive sentiment about the stores and belief in the brand, but it looks to me as though a great deal of growth is already priced in at this point, leaving little room for error.

I just can't justify paying more than 5 times trailing revenue and 50 times 2014 consensus earnings estimates (The company's fiscal year ends in January) for these shares. Sometimes there is a disconnect between price and valuation, and I believe that's the case with Five Below.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
FIVE $39.42 -0.78%
AAPL $126.44 -0.13%
FB $87.28 0.43%
GOOG $523.40 0.30%
TSLA $280.02 4.04%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs