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Five Below

NYSE: FIVE

The Tickers: Ashley Wang and Shagun Jain

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Agenda

Recommendation

Company Overview

Catalysts

Risks & Mitigations

Valuation

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Recommendation

Recommendation

We recommend a long position on Five Below.

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Due to Five Below’s unique position in the dollar store market, we recommend to long it for a year due to the increasing product variety and growth within the e-sports and e-commerce industries.

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Unique Positioning Eliminates Direct Competitors

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Overview

Dollar Store Industry

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Mass Merchants Industry

E-Commerce Industry

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Specialty value retailer offering trend-right merchandise targeted at tweens and teens

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“Let Go and Have Fun” Differentiated Experience with a high-energy retail concept

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Accelerating store growth at 21% CAGR in recent years, driving revenue growth

Target Market

Differentiated

Concept

High Growth

Overview

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Catalysts

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Ten Below Zones

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Improved E-commerce

Catalysts

Penetrating Esports

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Gaming Centers

⅔

23%

2.5 B

of Gen Z males say gaming is a core component of who they are

Gaming Industry growth rate

Average Revenue Projection for 2022

Catalysts

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Ten Below Zone

$5 - $10

4.1%

Roll out new products in a higher price range to increase product variety

Wage growth for lowest income earners in the past two years

Catalysts

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Acquiring Hollar.com Assets

Catalysts

CONVENIENCE

STREAMLINED DISTRIBUTION

REDUCED COSTS

NEW MEDIUMS

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Risks & Mitigation

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Tariff Uncertainties

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  • 65% of Five Below products are sourced domestically

Slowing Holiday Sales

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  • 23% Year-Over-Year sales growth is expected to persist

Decline in Retail Sector

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  • Acquisition of Hollar.com gives Five Below the competitive advantage

Risks & Mitigation

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Financial Analysis: Valuation

Current Price: $116.00

Valuation

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Five Below’s sustained fast-paced growth due to bolstered e-commerce, expanded product variety, and entrance into the e-sports industry, will continue to be reflected in its stock price. We recommend longing Five Below’s stock for a year to profit from the stock.

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Current Price

$116.00

Target Price

$156.59

Stock Return

↑34.04%

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Thank You

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Appendices

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Appendix: Annual Valuation Assumptions

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Appendix: Quarterly Valuation Assumptions

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Appendix: Annual Valuation

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Appendix: Quarterly Valuation

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Appendix: Annual Balance Sheet - Liabilities

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APPENDIX: FIVE BELOW IS UNIQUELY POSITIONED IN DOLLAR STORE INDUSTRY

Introduction

  • Five Below: a specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at tweens and teens (10-k)

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Unique Business Model

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  • Provide “Let Go and Have Fun” Differentiated Experience, merchandising strategy, and high-energy retail concept
    • Products: “Focused, Curated Selection Across Eight Distinct Worlds All Under One Roof Is Unique in Retail and Drives Flexibility and Relevancy” (William Blair)

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Successful Growth Model

  1. Advance Store Growth
    1. Accelerating Store Growth in recent years
    2. Main driver of revenue growth (William Blair)

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  1. Drive Comp Sales
    1. Five Below Beat Expectations for Comp Sales in Q4 of 2019 (SeekingAlpha)

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  1. Increase Brand Awareness
    1. Steady increase according to William Blair

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