Analyzing Five Below Stock Price Ahead of Earnings

Five Below is scheduled to report earnings on December 2

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Discount store chain Five Below, Inc. (NASDAQ:FIVE) sells an array of products ranging from tech to candy, all at a price of -- you guessed it -- typically under $5. Five Below has performed fairly well over the past few years, growing their revenue and net profit at a solid rate, and is looking to end the year of 2020 with a decent amount of profit despite the ongoing pandemic. 

Five Below will be looking to justify its amazing stock growth over the past year. FIVE is up 21.4% in 2020, and has more than tripled off its March 19 three-year bottom of $47.53. On Nov. 9 the shares scored a record high of $159.59, and while FIVE has pulled back some since then, the round $150 level could step up as newfound support.

The company is set to report earnings after the close on Dec. 2. The company has beat expectations on three of its four most recent earnings announcements. In the fourth quarter of 2019, Five Below beat expectations by $0.01. In the first quarter of this year, Five Below increased its EPS massively to $1.97 and beat expectations by a margin of $0.02. The company’s great earnings in the first quarter was followed by a huge loss in EPS in the following quarter. In the second quarter of 2020, Five Below reported a loss of -0.91, missing expectations by a sizable $0.58. Yet in its most recent quarterly report, the company beat their target by an amazing margin of 279%! Five Below reported an EPS of $0.53 instead of the expected EPS of $0.14. For its upcoming earnings due out on December 2, Five Below is expected to report an EPS of $0.19.

The problem here for investors with Five Below is its ironically high valuation. For a price-earnings ratio of 87.34, investors can get can purchase shares of a tech company with significantly more growth potential than FIVE stock. In fact, at FIVE's current price, the company would have to consistently report $2.00 EPS for it to even reach a price-earnings ratio under 20. In addition, Five Below has a significant debt load of $1.04 billion and only $202 million in cash to back up its weak balance sheet. Overall, FIVE has a way to go before it presents as a major growth opportunity for investors at its current price, especially when considering the stock is already priced-in for a full recovery and future earnings growth.

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