Five Below (FIVE) Has Fallen 1% in Last One Year, Underperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of RiverPark Advisors top stock picks. RiverPark Advisors, an investment management firm, is bullish on Five Below Inc (NASDAQ:FIVE) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Five Below Inc (NASDAQ:FIVE) stock. Five Below Inc (NASDAQ:FIVE) is a discount store company.

In July 2019, RiverPark Advisors had released its Q2 2019 investor letter. The investment firm said that Five Below Inc (NASDAQ:FIVE) stock was one of the top detractors to the Large Growth fund’s performance in Q2 2019. Five Below Inc (NASDAQ:FIVE) stock has posted a return of -0.4% in the trailing one year period, underperforming the S&P 500 Index which returned 10.7% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, Five Below Inc (NASDAQ:FIVE) stock has fallen by 0.3%.

In Q2 2019 investor letter, RiverPark Advisors said the Large Growth fund posted a return of 7.4% in the second quarter of 2019, outperforming fund’s benchmark the S&P 500 Index which returned 4.3% in the same period. Let’s take a look at comments made by RiverPark Advisors about Five Below Inc (NASDAQ:FIVE) stock in the Q2 2019 investor letter.

“Five Below: FIVE shares were also a top detractor for the quarter on mixed first quarter results and what was a difficult quarter for retail companies in general. The company’s 3.1% reported same store sales were within its guidance range and likely impacted by weather, but Street expectations were closer to 4%. Overall, the company reported impressive 23% sales growth and 18% EPS growth, and reiterated its 2019 financial guidance (as well as second quarter guidance in-line with Street expectations).

We initiated our position during the quarter, increased its size on its share price weakness, and FIVE has become a core holding in the Fund. We discuss the investment further below.

Five Below is a rapidly growing discount retailer in the US with similar economics to our dollar store holdings, Dollarama and Dollar General. The company targets a diverse mix of low-, middle- and higher-income shoppers, primarily tweens and teens, selling a unique blend of $5 and below items, including sporting goods, toys, leisure, fashion, accessories, jewelry, bath and body, candy, room décor and electronics. FIVE’s products are often significantly less expensive than the comparable products at big box or typical retailers, as the company contracts directly with manufacturers, allowing for different product and packaging specifications, as well as pricing. Five Below stores require minimal capital investment of about $300,000 each and generate an average $450,000 of year-one EBITDA, giving them fantastic economics with a 150% return on investment and less than one-year payback.

While the company has grown stores at a 20% growth rate for the past 20 years, with less than 800 stores today, they still have a long runway of growth, as FIVE’s store base is only 5% the size of Dollar General. Five Below has a long-term plan for greater than 20% revenue growth from high-teens store growth and low-single-digit same store sales growth. With an already high 36% gross margin (Dollar General and Dollarama have 30% gross margins), margin expansion will come more from SG&A leverage (FIVE’s SG&A is 24% of sales, compared with DG’s 22% and DOL’s 14%). We believe FIVE shares can compound from current levels at least in-line with the company’s long-term expected 20%+ annual earnings growth.”

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In Q2 2020, the number of bullish hedge fund positions on Five Below Inc (NASDAQ:FIVE) stock increased by about 35% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with FIVE’s growth potential. Our calculations showed that Five Below Inc (NASDAQ:FIVE) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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