Market Commentary

Is Five Below Inc. Attractive at $122, or Does Michael McCaul Just Love the Stock?

Ahmed Asaad4 Aug 2022 · 2 minutes

Texas Republican Rep. Michael McCaul bought the dip in Five Below Inc. (NASDAQ:FIVE) in June. In a filing on July 25, McCaul purchased Five Below stock on June 13. The shares were purchased for $122.28 at a value range of between 50K and 100K.

On June 27, McCaul was again on Five Below stock, snapping up the stock at $124.19. The stock was in the size range of $1K to $15K.

Looking back, Five Below stock has held to the same level it was when McCaul snapped up the stock. The stock currently trades at $133.79. still keeping the $112 support intact.

Is Five Below Inc. stock attractive?

Consumer budgets are getting constrained. Austerity measures rank at the top decisions of consumers in a bid to cut costs in an overheating economy. Discount stores could be a go-to place for shoppers, and investors should take note of such stocks.

Five Below Inc. is an American specialty discount store chain. The company claims to sell products at prices less than $5. Only a small collection of products sells above the threshold. However, Five Below, in our assessment, fails the test of a true discount store chain. The stock has lost more than the benchmark Nasdaq-100. There is still more for investors looking to buy the stock.

On valuation, Five Below has a PEG ratio of 1.86. The Miscellaneous industry has a comparable PEG ratio of 2.96. The ratio suggests that Five Below is undervalued relative to the industry.

Five Below results have been mixed. Diluted earnings per share of $0.59 in Q1 was below $0.88 last year but better than $0.58 estimates. Sales still increased to $639.6 million, from $597.8 million in the prior year. The sales missed estimates of $653.3 million.

Beaten-down stock

Five Below stock is down 35.59% year-to-date. The decline happens amid macro concerns. However, Five Below has held a key level of $112 since May as investors circle the stock.

The recent drop in Five Below had Oppenheimer in June commenting on the stock. According to the analysts, Five Below presents a “buying opportunity" in the medium and long-term. The analysts are banking on the company’s store expansion while peers scale down.

Summary

Five Below’s fundamentals and technical align at the bottom price. The stock also has an attractive valuation. That could explain the recent buys by McCaul and calls by Oppenheimer valid.