Five Below Falling Toward Earth

NEW YORK (TheStreet) -- It's a rare that I get interested in a growth stock.

Call it a shortcoming or perhaps an investment philosophy character flaw, but I'm just not wired to be a growth investor. During the tech boom, I was buying boring and cheap companies, while many of my colleagues were into the latest highflyers. They were making money, too; at least while it lasted. But the bottom line is that I'm just a value guy at heart, and that is unlikely to change.

Occasionally, however, I'll take a position in a former growth company that has gone to the "dark side," as growth investors begin to give up and formerly high multiples become more compelling. It happened with eBay (EBAY) a few years ago and more recently with Corning (GLW), which I still own.

One company that is starting to look interesting is retailer Five Below (FIVE). Now, this is no eBay or Corning, for sure. Somewhat new to the scene having gone public in July 2012, it's not exactly cheap.

But for a company with a great retail concept that is also in its infancy, it appears as though the growth crowd has turned on it, at least for now. Shares are down 36% since mid-November, with much of that damage done due to lowered company outlook for its fiscal fourth quarter.

Five Below opened 28 new stores during its fiscal third quarter and 60 during the first nine months of 2013. The company ended its third quarter with 304 stores in 19 states. When it went public less than two years ago, it had about 200 stores, and was not profitable.

It had big plans -- to open up to 2,000 stores over 20 years. That may actually be doable.

Now profitable, Five Below trades for about 39 times 2015 estimates. That's a number that would often make me choke, but in this case, it is making me intrigued.

I would take a position in a heartbeat at 30 times the 2015 average estimate of analysts, which would imply a $27 stock price, but I don't know if we'll get there; that would take another 23% drop from current levels.

 FIVE ChartFIVE data by YCharts

Playing into this interest in Five Below is the umpteen times per year that we visit our local store. If Five Below had existed when I was a teenager, I would have no doubt spent a good deal of my hard-earned lawn-mowing, dishwashing and paper-route earnings there.

It's like the local five-and-ten store we had growing up in our small New Jersey town, but on steroids. I see the appeal of Five Below and why our teenagers are drawn to it.

Having frequented the store prior to the IPO, I had it on a short list of companies that I would have liked to see go public. When that finally happened, it was one of the freshest IPO's I had seen in a while, and the great excitement surrounding it pushed shares up 56% from the $17 IPO price on the first day of trading. It was pretty expensive, because of all of the fanfare.

Lately, however, as recent trading activity would attest, the growth crowd has soured a bit on the stock. To me, it looks like a much better buy now that it is profitable and has demonstrated the ability to increase its store base since going public.

The company is expected to announce fourth-quarter and full-year results on March 24. That could be an interesting day, especially if growth investors don't get what they are looking for and punish the stock further.

At the time of publication, Heller was long Corning.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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