(By Balachander) Five Below Inc. (NASDAQ:FIVE) shares were initiated with a "Buy" rating and price target of $40 by Deutsche Bank analyst Charles Grom.
Philadelphia, Pennsylvania-based Five Below operates as a specialty value retailer offering merchandise for teen and pre-teen customers.
"Few retailers hold the investment attributes that Five exhibits - (1) 25 percent+ unit growth, (2) HSD/LDD SSS growth led by traffic, (3) sizeable EBIT margin upside with a 4 percent fixed cost hurdle rate, & (4) a 30 percent LT EPS CAGR," Grom wrote.
"Even with the stock up 88 percent since its IPO on 7/18, we don't think FIVE looks back - see the post IPO performance of DG (Buy, $52.31), GNC (Buy, $38.58), VSI (Hold, $56.49), & TFM (Buy, $60.56) as parallels in our space," the analyst said.
"Finally, while valuation is the biggest hurdle for most, we're willing to pay up for the growth that lies ahead for the team from Philly," Grom added.
Key downside risks are weaker-than-expected comps and execution around future door expansion, the analyst wrote.
Shares, which have been trading in the 52-week range of $25.00 to $33.97, added 0.86 percent to trade at $32.79 on Wednesday.