Five Below’s Stock Price Gets Punished After Sales Miss

With inflation rearing its head in the economy, discount retailers should be poised to benefit. Value retailer Five Below sells most of its items for below $5, as the name suggests, though due to inflation some prices are higher. While the retailer is poised to benefit from the uncertain economic environment, investors chose to see the glass half empty.

Five Below’s stock suffered a 13% decline on Thursday after the company reported weaker than expected Q2 sales. Five Below’s net sales came in at $646.6 million, falling shy of the $648 million Wall Street was expecting.

While Five Below missed expectations, its net sales were up more than 51% vs. year-ago levels at the height of the pandemic. Net income was up nearly 125% year-over-year (YoY) to $64.8 million. And according to CEO Joel Anderson, sales are looking up for the current quarter. He stated,

“The third quarter is off to a strong start from a sales perspective.”

Bullish Price Target

Investors punished the stock anyway. According to one analyst firm, now might be the time to stock up on Five Below shares. Wall Street firm Jefferies believes the stock was overly punished and that investors should seize the opportunity and buy more shares.

The Jefferies analysts wrote that the sales only “slightly” missed consensus estimates and besides, the pandemic has made it tricky to use prediction models anyway. Instead, the analysts say to focus on the positive, rising comparable-store sales, more retail locations and a solid Q3 forecast. Five Below opened more than 30 new stores in the quarter, up 14.2% YoY.

After Thursday’s selling, Five Below shares are hovering at $187. Jefferies analysts are bullish on the stock and have a $300 price target attached.

Five Below’s Q2 was solid based on year-ago results, except for the fact that it missed sales estimates. The company’s partnership with Instacart for same-day delivery should be a boon for margins similar to how the ship-from-store model has benefited other retailers such as Dick’s Sporting Goods. Five Below recently expanded that service to more stores.

For investors who are interested in the long-term outlook, Five Below is a growing company that appears to have the economic winds at its back for the foreseeable future.

Earnings Week Ahead: Zoom, Nordson, Five Below and MongoDB in Focus

Earnings Calendar For The Week Of August 30

Monday (August 30)

IN THE SPOTLIGHT: ZOOM, NORDSON

ZOOM: The San Jose, California-based communications technology company is expected to report its second-quarter earnings of $1.16 per share, which represents year-over-year growth of over 26% from $0.92 per share seen in the same period a year ago.

The company, which provides video telephony and online chat services through a cloud-based peer-to-peer software platform, would post revenue growth of about 50% to $990.2 million. Zoom will report 2Q FY22 earnings after market close on Monday, August 30th.

Zoom expects to report revenue of $985 million to $990 million and adjusted earnings of $1.14 to $1.15 per share in the second quarter. In its full-year guidance, the company now expects revenue of $3.98 billion – $3.99 billion, and adjusted earnings of $4.56 – $4.61 per share.

“Continuation of WFH and structural increase in usage of video, progress in Phone, and pending FIVN acq supports Zoom Video Communications’ (ZM) longer-term platform opportunities. With Delta variant likely slowing NT churn, FQ2 expectations skew high. Remain EW but positively inclined w/ next legs of growth coming into view,” noted Meta A Marshall, equity analyst at Morgan Stanley.

Zoom has established its position as the newly emerged leader in video conferencing, now a growth market, largely credible to the company itself given an introduction of a solution that employees actually use. The company has a meaningful competitive moat built on more than just architecture, but a rapid uptick in video usage has attracted significant investment efforts from competitors. Position within customers makes an attractive opportunity to expand into the broader UC market. Early wins are encouraging. Expanding platform with pending FIVN acquisition. Environment post-COVID and large-scale WFH, and timing to reach, less certain.”

NORDSON: The Westlake, Ohio-based medical device manufacturer is expected to report its fiscal third-quarter earnings of $2.07 per share, which represents year-over-year growth of over 45% from $1.42 per share seen in the same period a year ago.

The maker of adhesives and industrial coatings would post revenue growth of about 12% to $600 million. Nordson will report 3Q FY21 earnings on Monday, August 30th. It is important to note that the company beat consensus expectations for EPS four times in a row. Monday’s better-than-expected results could help the stock hit new all-time highs.

“We are tactically constructive into Nordson’s (NDSN) 3Q21 earnings release next week, as we see the likelihood for a 3Q21 beat and full-year guidance raise. Additionally, we think NDSN’s favourable exposure to electronic components shortages (more an upside opportunity than downside risk) is differentiated,” noted Connor Lynagh, equity analyst at Morgan Stanley.

“We are making moderate revisions to our prior estimates, largely reflecting our incrementally positive outlook on NDSN’s end-markets. The impact on our long-term estimates is limited, with FY21 EBITDA only ~3% higher. Near-term, we have raised our 3Q consolidated revenue growth by ~400bps, with ATS ~700bps higher. Consequently, 3Q revenue is ~3% above prior, with EBITDA ~5% higher as well.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE AUGUST 30

Ticker Company EPS Forecast
LI Li Auto $0.00
CTLT Catalent $1.10
ZM Zoom Video Communications $1.16
NDSN Nordson $2.07
BACHY Bank China ADR $0.84
CEA China Eastern Airlines -$1.34
ADOOY Adaro Energy ADR $0.12

Tuesday (August 31)

Ticker Company EPS Forecast
NTES NetEase $6.16
ALXN Alexion Pharmaceuticals $3.43
IMAB I Mab -$1.24
EGFEY Eurobank Ergasias S.A. ADR $0.01
CRWD CrowdStrike Holdings Inc. Cl A $0.09
PVH PVH $1.20
AMBA Ambarella $0.25

Wednesday (September 1)

IN THE SPOTLIGHT: FIVE BELOW

The Philadelphia, Pennsylvania-based discount retailer Five Below is expected to report its second-quarter earnings of $1.11 per share, which represents year-over-year growth of over 45% from $0.50 per share seen in the same period a year ago.

The popular discount store retailer that sells products that cost up to $5 would post revenue growth of more than 50% to $656 million. Five Below will report 2Q FY21 earnings after market close on Wednesday, Sept 1. It is important to note that the company beat consensus expectations for EPS four times in a row.

Five Below’s (FIVE) profile among pure B&M retailers is nearly unmatched (20% top/bottom-line growth, no debt). It’s driven by a differentiated, defensible model focused on extreme value merchandise across diverse categories. FIVE is exiting the COVID-19 pandemic as a fundamentally stronger and more relevant business, with best-in-class growth characteristics, various company-specific initiatives in place, and solid liquidity,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“However, valuation is near peak the stock seems fairly valued, in our view, with a balanced risk/reward skew. White space store growth (>50% unit runway remaining) and multi-year track record of ~20% square footage growth with >90% productivity.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 1

Ticker Company EPS Forecast
CPB Campbell Soup $0.47
GEF Greif $1.54
VEEV Veeva Systems $0.87
SMTC Semtech $0.62
FIVE Five Below $1.11

Thursday (September 2)

IN THE SPOTLIGHT: MONGODB

MongoDB Inc, which provides an open-source database platform for automating, monitoring, and deployment backups, is expected to report a loss of $0.39 per share in the second quarter, worse than -$0.22 per share seen in the same quarter a year ago.

However, the New York City-based company would post year-over-year revenue growth of over 30% to $182.4 million.

MongoDB has established itself as one of the most popular databases to support the development of modern net-new apps. Into CY21, we see the business at a crucial inflection point. First, it is poised to garner the majority of revs from its public cloud business – the segment where market growth and share gains are the strongest,” noted Sanjit Singh, equity analyst at Morgan Stanley.

“Second, the acceleration in customer adds suggests that its go-to-market model has matured to scale a modern, cloud-first business.  As a result, an equation for durable 30%+ growth emerges (20%+ customer base growth with near 120% net expansion from the existing base) – a growth story that does not look overly demanding given the strategic nature of this asset.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 2

Ticker Company EPS Forecast
BDEV Barratt Developments £32.00
CIEN Ciena $0.80
SIG Signet Jewelers $1.62
AEO American Eagle Outfitters $0.54
TTC Toro $0.77
HRL Hormel Foods $0.40
SAIC Science Applications International $1.47
GWRE Guidewire Software $0.24
AVGO Avago Technologies $6.88
COO Cooper Companies $3.29
PDCO Patterson Companies $0.37
MDB MongoDB Inc -$0.39
SMAR Smartsheet Inc. -$0.13
CLDR Cloudera Inc. $0.10
PD PagerDuty Inc. -$0.15
GMS GMS Inc. $1.26
DCI Donaldson $0.66
HPE Hewlett Packard $0.42
BRC Brady $0.71

Friday (September 3)

No major earnings are scheduled for release.

Five Below Q2 Earnings to More Than Double, Revenue to Jump Over 50%

The Philadelphia, Pennsylvania-based discount retailer Five Below is expected to report its second-quarter earnings of $1.11 per share, which represents year-over-year growth of over 45% from $0.50 per share seen in the same period a year ago.

The popular discount store retailer that sells products that cost up to $5 would post revenue growth of more than 50% to $656 million. Five Below will report 2Q FY21 earnings after market close on Wednesday, Sept 1. It is important to note that the company beat consensus expectations for EPS four times in a row.

Five Below shares have gained over 23% so far this year. However, the stock fell about 4% to $216.04 on Friday.

Analyst Comments

Five Below’s (FIVE) profile among pure B&M retailers is nearly unmatched (20% top/bottom-line growth, no debt). It’s driven by a differentiated, defensible model focused on extreme value merchandise across diverse categories. FIVE is exiting the COVID-19 pandemic as a fundamentally stronger and more relevant business, with best-in-class growth characteristics, various company-specific initiatives in place, and solid liquidity,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“However, valuation is near peak the stock seems fairly valued, in our view, with a balanced risk/reward skew. White space store growth (>50% unit runway remaining) and multi-year track record of ~20% square footage growth with >90% productivity.”

Five Below Stock Price Forecast

Fourteen analysts who offered stock ratings for Five Below in the last three months forecast the average price in 12 months of $236.33 with a high forecast of $300.00 and a low forecast of $185.00.

The average price target represents a 9.30% change from the last price of $216.22. From those 14 analysts, eight rated “Buy”, six rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $230 with a high of $300 under a bull scenario and $140 under the worst-case scenario. The firm gave an “Equal-weight” rating on the discount retailer’s stock.

Several other analysts have also updated their stock outlook. UBS raised the target price to $230 from $210. Deutsche Bank lifted the price target to $271 from $254. Berenberg upped the target price to $185 from $181.

Best Growth Stocks June 2021

The hallmark way we go about finding the best stocks…the outliers, is by looking for quiet Big Money trading activity.

Oftentimes, that can be institutional activity. We’ll go over what that looks like in a bit. But, the 5 stocks we see as long-term candidates are SQ, CYBR, TTD, NOW, & FIVE.

For MAPsignals, we believe the true tell on the near-term trajectory of the stock lies in the trading activity of the stock. The bottom line here is that oftentimes the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than by simply looking at a company’s financials alone. We want the odds on our side when looking for the highest quality stocks.

Up first is Square, Inc. (SQ), which is a leading point-of-sale company. They help businesses seamlessly transact with their consumers. They also own the popular Cash App.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important. Square has been pulled lower like many Technology stocks:

  • YTD performance (-6.65%)
  • YTD underperformance vs. technology ETF (-9.91% vs. XLK)
  • Historical big money signals

Just to show you what our Big Money signal looks like, have a look at all of the top buy signals SQ has made recently. It’s had a strong chart over the past few years, too. Green bars are showing that Square was likely being bought by a Big Money player according to MAPsignals. It’s clear there’s a lot of green historically with this stock. That’s exactly what you want to see when looking for a great growth name.

Chart, line chart Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, you need to look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Square’s numbers have been strong:

  • 3-year sales growth rate (+64.45%)
  • 3-year earnings growth rate (-.66%)

Next up is CyberArk Software, Ltd. (CYBR), which is a leading cyber security company. The stock has been a huge winner over the years.

When we decide on the strongest candidate for long-term growth, we look at technicals. Sometimes a pullback is healthy. Here’s where CYBR stacks up:

  • YTD performance (-25.83%)
  • YTD vs. technology ETF (-29.09% vs. XLK)
  • Historical big money signals

While the stock has underperformed recently, look below. These are the top buy signals CyberArk has made since 2015. Clearly the Big Money has been consistent for years:

Chart, histogram Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of a great long-term technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, CyberArk has solid fundamentals:

  • 3-year sales growth rate = +21.53%
  • 3-year earnings growth rate = +34.3%

Another growth name to consider is Trade Desk, Inc. (TTD), which is a online advertising platform. The stock has been in beast-mode for years.

When we decide on the strongest candidate for long-term growth, we want to see a history of big money buying the shares. TTD has that. Also, the shares have pulled back massively in 2021:

  • YTD performance (-36.52% vs. SPY)
  • YTD underperformance vs. software ETF (-32.64% vs. IGV)

Below are the big money signals TTD has made since 2016. That’s a chart of a rocket:

Chart, line chart Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of a strong technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. Trade Desk’s revenue growth rate is impressive. I expect earnings to rebound in the coming years:

  • 3-year sales growth rate = +39.94%
  • 3-year earnings growth rate = +65.72%

Number 4 on the list is ServiceNow, Inc. (NOW), which is a leading enterprise cloud computing solutions company. The shares have been in bull-mode the past couple of years.

When we decide on the strongest candidate for long-term growth, we consider many technical areas. ServiceNow has pulled back like many Tech names:

  • YTD performance (-16.93%)
  • YTD underperformance vs. software ETF (-13.05% vs. IGV)
  • Historical big money signals

Below are the big money signals NOW has made since 2015:

Chart, line chart Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, NOW has been growing nicely:

  • 3-year sales growth rate = +32.73%
  • 3-year earnings growth rate = +.49%

Our last growth candidate is Five Below, Inc. (FIVE), which is specialty discount retailer. They have been growing rapidly for years.

When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for FIVE being:

  • YTD performance (+5.56%)
  • YTD outperformance vs. discretionary sector (+.22% vs. XLY)
  • Historical big money signals

Below are the big money signals Five Below has made since 2015. You can see how powerful the performance has been:

Chart Description automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of the technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. Five Below has grown over the past few years:

  • 3-year sales growth rate = +15.55%
  • 3-year earnings growth rate = +10.53%

The Bottom Line

SQ, CYBR, TTD, NOW, & FIVE represent top growth stocks for June 2021. Given the strong historical revenue & earnings growth, and multiple big money buy signals, these stocks could be worth extra attention.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds a long position in SQ in personal accounts, but no positions in CYBR, TTD, NOW, & FIVE at the time of publication.

Investment Research Disclaimer