NEW YORK (TheStreet) -- Shares of Five Below (FIVE) are rallying 3.11% to $41.12 after analysts at RBC Capital Markets initiated coverage of the company with an "outperform" rating and a price target of $48.
The specialty value retailer "has one of the best long-term growth profiles in retail, with the potential to expand their store footprint by nearly 500%+ over time," analysts said.
Its stores are highly productive and its low price point model also protects against e-commerce cannibalization.
Additionally, FIVE compares favorably on a PEG basis to other retail concepts like Chipotle Mexican Grill (CMG), Tractor Supply (TSCO) and Ulta (ULTA), but has nearly four times the unit expansion potential of these other retailers, according to the analyst note.
Separately, TheStreet Ratings team rates FIVE BELOW INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate FIVE BELOW INC (FIVE) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including premium valuation, poor profit margins and relatively poor performance when compared with the S&P 500 during the past year."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 9.2%. Since the same quarter one year prior, revenues rose by 22.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- FIVE BELOW INC has improved earnings per share by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, FIVE BELOW INC increased its bottom line by earning $0.88 versus $0.58 in the prior year. This year, the market expects an improvement in earnings ($1.05 versus $0.88).
- FIVE has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Despite the fact that FIVE's debt-to-equity ratio is low, the quick ratio, which is currently 0.68, displays a potential problem in covering short-term cash needs.
- The gross profit margin for FIVE BELOW INC is currently lower than what is desirable, coming in at 30.68%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.78% trails that of the industry average.
- You can view the full analysis from the report here: FIVE Ratings Report