Five Below (FIVE): A Bull Case Theory

We came across a bullish thesis on Five Below on InvestingWithWes Newsletter’s Substack. As of 2ⁿᵈ July, Five Below’s share was trading at $133.16. FIVE’s trailing and forward P/E were 27.86 and 27.70  respectively according to Yahoo Finance.

Five Below, founded in 2022 by Tom Vellios and David Schlessinger, operates as a discount store offering trendy products at $5 or less and up to $25. The company has a strong presence among tweens, teens, and budget-conscious shoppers. Its product range includes leisure items like board games and outdoor play, fashion and home decor items, and snacks and seasonal products. Despite a high PE ratio of 23x and a Price to Free Cash Flow ratio of 53x, which might indicate a premium, the company’s growth potential could justify its valuation. Five Below’s debt-to-equity ratio is 1.10, slightly above the 1.0 threshold, due to its growth phase and reinvestment strategy.

The company’s free cash flow has decreased due to increased capital expenditures, which are expected to drive future growth. Its free cash flow yield is 2%, lower than the 7% threshold, but its operating cash flow yield is 6.8%. Under the leadership of CEO Winnie Park, who has experience from Forever21 and Paper Source, Five Below has a solid strategy for growth. The company’s capital allocation has been effective, with reinvestments aimed at expanding operations. However, there are no dividend payouts, as all cash flow is reinvested into the business.

The bull case for Five Below includes a long runway for growth with a target of over 3,500 stores by 2030, a unique competitive advantage in attracting young shoppers with trendy merchandise, and adaptability to market trends. The bear case involves competition from traditional discount retailers and e-commerce platforms, dependence on trends, and limited market presence. Valuating Five Below using a discounted cash flow model, with conservative growth assumptions and an exit multiple of 15x earnings, suggests the company is trading above its intrinsic value of $105.85, compared to the current stock price of $114.77.

Previously, we covered a bullish thesis on Hasbro, Inc. by The Reservist in April 2025, which highlighted the company’s rich IP portfolio, strategic shift to digital licensing, and turnaround-led margin improvements. The company’s stock price has appreciated by approximately 10% since our coverage. This is because the thesis is beginning to play out through improved fundamentals. InvestingWithWes shares a similar view but emphasizes Five Below’s reinvestment-driven growth strategy targeting a younger demographic and long-term store expansion.

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Disclosure: None. This article was originally published at Insider Monkey.