Five Below (FIVE - Get Report) shares were falling Monday after analysts at Barclays downgraded the stock to equal weight from underweight despite the firm's view that Five Below is the best specialty retail stock in its class.
The firm did, however, raise Five Below's price target to $140 from $128. Barclays analyst Karen Short explained this by saying that to justify an overweight rating Five Below would have to have a $165 price target, which Barclays isn't prepared to give it.
"To be clear, FIVE's management team remains exceptionally focused on execution within its retail vertical. Furthermore, the FIVE model is highly differentiated and defensible vs. Amazon, while the visible unit growth opportunity (~20% unit growth) matched with top tier return metrics (ROIC ~18%, less than 1 year payback period on new units) still warrant best-in-class status," Short wrote.
Short also noted that there are risks to the firm's view on Five Below.
"With potential for continued favorability in macro factors such as employment and wage growth, as well as a potential resolution to U.S./China trade disputes, the curren "euphoria" in valuations could become even more pronounced. Furthermore, the "e" in the PE or EV/EBITDA ratios may continue to rise if consumer spending strength continues, which could result in continued upside to stocks even if multiples don't expand," Short wrote.
The stock fell 2.8% to $141.99.
Five Below is a holding in Jim Cramer's Action Alerts PLUS charitable trust.