On Thursday, Gordon Haskett upgraded shares of Five Below (NASDAQ:FIVE), a popular discount retailer, from a Hold to a Buy rating, setting a new price target of $120.00. The firm's analyst cited a potential 35% upside from the current stock levels, based on a 24x multiple of the forecasted fiscal year 2025 earnings per share (EPS).
The analyst's decision to upgrade the retailer's stock comes after a period of reflection on the company's performance since its March 2022 Analyst Day. It was noted that Five Below had previously become complacent, focusing too intently on its "triple-double" long-term algorithm. Additionally, the company's virtual management team structure and a shift to higher price points were identified as missteps, leading to less discipline within the buying team and an over-assorted supply chain and stores.
Despite recent downgrades by other sell-side analysts over tariff-related concerns, Gordon Haskett acknowledges these risks but remains optimistic. The analyst believes that Five Below has specific margin-related offsets, such as pricing adjustments and shrink recovery, that could help mitigate the impact of tariffs. It is also suggested that the imposition of tariffs might be more gradual, lessening the potential burden they could present.
The upgrade reflects a belief in the company's ability to navigate through the current market challenges and improve its operational discipline. The new price target represents a significant increase from the stock's current trading level, indicating confidence in Five Below's future financial performance and stock valuation.
In other recent news, Five Below has been the subject of multiple analyst revisions. BofA Securities downgraded the company from Neutral to Underperform, citing concerns over the company's ability to recover in its comparable store sales and expectations for continued margin pressure. The firm also reduced its price target to $75, reflecting a price-to-earnings ratio of 17 times.
On the other hand, Mizuho (NYSE:MFG) Securities increased the price target on Five Below's shares to $90, maintaining a neutral rating, while Craig-Hallum raised its stock price target to $125 from the previous $102, maintaining a buy rating.
Despite these mixed analyst projections, Five Below reported a decrease in net income, despite a 9.4% increase in total sales, amounting to $830 million. However, comparable store sales declined by 5.7%. The company's Chief Merchandising Officer, Michael F. Romanko, is set to retire effective November 17, 2024.
Furthermore, the company plans to open between 150 to 180 new stores in 2025 as part of its strategic shift to improve operational efficiency and re-engage with its core customers. These are the recent developments for Five Below, which continues to navigate the competitive retail landscape amidst external economic pressures.
InvestingPro Insights
Recent InvestingPro data provides additional context to Gordon Haskett's upgrade of Five Below (FIVE). The company's market cap stands at $5.05 billion, with a P/E ratio of 18.01, suggesting a relatively moderate valuation compared to some high-growth retailers. Five Below's revenue growth of 14.23% over the last twelve months and 9.37% in the most recent quarter indicates continued expansion, aligning with the analyst's optimistic outlook.
InvestingPro Tips highlight that Five Below has been profitable over the last twelve months, supporting the analyst's confidence in the company's financial health. However, the stock has experienced significant volatility, taking "a big hit over the last week" and falling "significantly over the last year." This recent price action may present an opportunity for investors who agree with Gordon Haskett's bullish stance.
It's worth noting that Five Below's PEG ratio of 4.14 suggests the stock is trading at a high P/E ratio relative to its near-term earnings growth, which investors should consider alongside the analyst's projections. For a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Five Below's investment potential.
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