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Five Below Initiated Neutral At BTIG On Valuation

FIVE - Five Below Initiated Neutral At BTIG On Valuation

Five Below Inc FIVE 1.44% shares currently trade at an 82 percent premium to the S&P 500, which BTIG’s Alan Rifkin believes fairly reflects the company’s growth prospects.

Rifkin initiated coverage of the company with a Neutral rating.

Long Runway For Growth

The analyst believes that Five Below has a long runway for growth, with a target of more than 2,000 stores, which could potentially quadruple the company’s store base.

“FIVE’s ability to grow square footage annually by 16–20 percent is a rarity in retail,” Rifkin mentioned.

New store investments average $300,000, while NSP is more than 90 percent, with over 90 percent of stores having a payback period of less than one year.

The analyst believes Five Below will be able to self-fund its future growth, which is a “real positive.”

Multiple Margin Drivers

In addition, Rifkin believes there are multiple margin drivers, including “(1) purchasing efficiencies, (2) sourcing more imported product, (3) leveraging distribution costs and ad spend, and (4) increasing the mix of proprietary products.”

The analyst also pointed out that Five Below’s reliance on teenage customer was not as high as some believe, with teens aged 13–17 accounting for only 15 percent of sales. Adults without children make up the largest customer group, accounting for 45 percent of revenues, while adults with children make up the remaining 40 percent.

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DateFirmActionFromTo
Aug 2016BTIG ResearchInitiates Coverage onNeutral
Aug 2016UBSMaintainsBuy
Aug 2016Deutsche BankMaintainsHold

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