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On Thursday, Guggenheim maintained a Buy rating on Five Below (NASDAQ:FIVE) stock but reduced the price target to $125 from the previous $140. The adjustment comes in light of the company’s fourth-quarter earnings report and the anticipation of tariff-related margin pressures. According to InvestingPro data, the stock has experienced significant pressure, falling over 60% in the past year, though recent financial metrics show the company maintaining profitability with an 8.9% revenue growth.
In his analysis, the Guggenheim analyst noted that the immediate positive market reaction to Five Below’s quarterly report, which saw the stock climb over 10% in after-hours trading, was likely due to a recalibration of expectations for 2025 amidst significant tariff uncertainties. The earnings guidance provided by the company was more conservative than consensus estimates, reflecting an expected impact of 100 basis points from tariffs, especially in the second half of the year. Furthermore, the guidance did not account for any potential adjustments in shrink accruals, which are expected to be reassessed following inventory checks in the summer. InvestingPro analysis indicates the company maintains strong financial health with a current ratio of 1.79, suggesting adequate liquidity to navigate near-term challenges.
The analyst expressed that the lower end of the earnings per share (EPS) guidance, which is set between $4.10 and $4.40, might be cautious, considering their own estimate stands at $4.56. Despite the reduction in the price target, the analyst emphasized the potential for near-term multiple expansion. The current share price implies a P/E ratio of 15.6x and an EV/EBITDA of 11.84x, which InvestingPro analysis suggests may be conservative given the company’s growth trajectory. Get access to the comprehensive Pro Research Report and 12+ additional exclusive ProTips to fully understand Five Below’s valuation potential.
Five Below’s stock movement in the after-hours trading on the day of the earnings report reflects an initial investor sentiment that the company’s longer-term financial outlook remains solid, despite the short-term challenges posed by tariffs. The Guggenheim analyst’s reiteration of the Buy rating suggests confidence in the company’s ability to navigate through these headwinds and eventually achieve a valuation that better reflects its growth prospects. Based on InvestingPro’s Fair Value analysis, the stock currently appears undervalued, supporting the potential for multiple expansion highlighted by analysts.
In other recent news, Five Below has reported its fourth-quarter 2024 earnings, surpassing Wall Street expectations with an earnings per share (EPS) of $3.48 compared to the forecasted $3.37 and revenue of $1.39 billion, exceeding the anticipated $1.38 billion. The company plans to open 150 new stores in 2025, indicating a strategic focus on expansion. Analysts have mixed outlooks on Five Below’s stock, with Truist Securities reducing the stock’s price target to $86 while maintaining a Hold rating due to concerns over tariffs and cost pressures. Meanwhile, KeyBanc maintains a Sector Weight rating, acknowledging the company’s strong performance but noting the complexities added by tariffs. Mizuho (NYSE:MFG) Securities also cut the stock’s price target to $88 from $105, citing tariff challenges that could erode margins. In contrast, Evercore ISI slightly increased its price target to $93, recognizing the retailer’s efforts to enhance its product offerings and shopping experience. These recent developments highlight the ongoing challenges and strategic initiatives Five Below is undertaking in the current economic environment.
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