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Five Below Stock Could Be a Great Pick In Discount Retail

Five Below is a growing company, but only buy it at certain levels. the stock has run up a lot.

Watch the correlation between slower consumer spending and sales growth at discount retailers, say some on Wall Street. 

That's why Jim Cramer's Action Alerts Plus team owns Five Below Inc. (FIVE) - Get Five Below, Inc. Report . hint: clothes sold in Five Below are $5 apiece or below. 

"Everything sold there is five dollars or less, so if you're worried about a recession or something like that, you're thinking people are going to start moving towards those stores where they can catch a deal -- Five Below fits," said Zev Fima, Research analyst at AAP. 

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One of the larger concerns with this stock is that its forward twelve months price-to-earnings ratio is 41, well above market for discount retail stocks. There's a reason. It's in the midst of a large expansion of stores, and it realizes return on new store investment much faster than its peers. Still, the elevated earnings multiple has come as the stock has shot up 46% since the bloody Christmas Eve selloff. 

"We've told members {AAP members} 'don't chase it up here," Fima said, adding that "it's gone from $100 to $130 in a month or two."

See Cramer and company's analysis on Five Below here

Five Below is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells FIVE? Learn more now.