Thursday, November 7, 2013

FIVE Alive!

I also considered using "Five Below is Heading Up!" as a blog post title; I struggle with the titles. More importantly, the chart of Five Below (FIVE) looks terrific, exhibiting several bullish features.


The daily chart above shows FIVE carving out a triangle formation from April to July with a breakout occurring in July. Price then ran to just shy of the prior high at $42 only to retrench back to the lower boundary of the triangle. In September, price made a run in the first week of the month and then gapped up on very high volume to near $48, breaking out of both the triangle and prior highs at the $42 level. During the latter half of September and first half of October, shares of FIVE retraced about 50% of the gap up ("filling the gap") with a pennant formation eventually developing. Pennants are continuation patterns, meaning odds greatly favor the ensuing breakout to occur in the direction of the existing trend, in this case being up. The breakout in mid-October did indeed serve to continue the trend as the stock price climbed to near $50. FIVE traversed sideways for several days between $48-$50 and on Monday the stock once again broke out to new highs above the $50 level.

The relative chart portrays a similar picture:

The relative price of FIVE vs. SPY more clearly depicts a cup-and-handle formation including the breakout of the handle more recently -- all bullish.

I am obviously very bullish on the stock given the chart and technicals, but the CFA side of me also very much likes the fundamentals and growth drivers for the company. Five Below is a chain of stores that sells items for no more than $5. The company was founded in 2002, went public last year at $17, and now has over 250 stores. The primary audience for FIVE is the youth/teen market, affording the company no direct competitors. Its square footage growth and profitability metrics are some of the best in the retail industry. The company is expected to experience 25% annualized growth over the next several years with the target being 2000 stores nationwide.

I can't help but compare FIVE to its cousins, the dollar store stocks:

Over the last four years, DG, DLTR and FDO have easily surpassed the performance of the S&P 500. And up in Canada, Dollarama has simply blown away the performance of the TSX. My hope and expectation is that FIVE will do something similar to these stocks, if not better.

(Disclosure: I have owned FIVE and still do. I will report here before I sell, if and when I ever do.)

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