Why Analysts Say Five Below Is a Buy After Earnings

The outside of a Five Below value store in Vallejo, California

(Image credit: Justin Sullivan/Getty Images)

Five Below (FIVE) stock is soaring up the price charts Thursday after the value retailer beat top- and bottom-line expectations for its fiscal third quarter and raised its full-year outlook.

In the 13 weeks ended November 2, Five Below's revenue increased 14.6% year over year to $843.7 million, boosted by new store openings and a 0.6% rise in comparable-store sales. Its earnings per share (EPS) were up 61.5% from the year-ago period to 42 cents.

"We delivered stronger performance across a broader group of our merchandise worlds compared to the second quarter and improved our operational execution," said Ken Bull, Five Below's interim CEO and chief operating officer, in a statement. "We were encouraged to see the positive results from the initiatives we undertook to add newness and deliver value in key categories."

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The results topped analysts' expectations. Wall Street was anticipating revenue of $799 million and earnings of 17 cents per share, according to CNBC.

As a result of its performance, Five Below raised its full-year outlook. The company now expects to achieve revenue in the range of $3.84 billion to $3.87 billion and earnings per share of $4.78 to $4.96. This compares to its previous forecast for revenue of $3.73 billion to $3.8 billion and EPS between $4.35 to $4.71.

For its fiscal fourth quarter, Five Below expects revenue in the range of $1.35 billion to $1.38 billion and earnings per share of $3.23 to $3.41.

In a separate release, Five Below named Winnie Park as its new CEO, effective December 16. Park most recently served as the CEO of fashion retailer Forever 21 since January 2022.

Is Five Below stock a buy, sell or hold?

Five Below has had a rough go of it on the price charts, down 45% for the year to date. Yet, Wall Street is bullish on the consumer discretionary stock.

According to S&P Global Market Intelligence, analyst's average price target of $119.95 represents implied upside of more than 3% to current levels. Additionally, the consensus recommendation among the 23 covering analysts it tracks is Buy.

Financial services firm UBS Global Research is one of those with a Buy rating on the mid-cap stock. The group also raised its price target to $150 from $108 following the earnings release.

"Despite the sequential improvement in the third quarter, FIVE is still in the early innings with respect to its multitude of initiatives to stabilize the business," says UBS Global Research analyst Michael Lasser.

The analyst adds that these initiatives include "investments in labor, SKU rationalization, and enhancements to its price and value perception, as well as improved product newness and innovation. As these investments bear fruit, we think the retailer's potential should become more apparent."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.