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Comparing Five Below’s Valuation to Its Peers’

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Forward PE

As of July 5, Five Below (FIVE) was trading at a 12-month forward PE multiple of 36.4x. Since its first-quarter results on June 6, Five Below’s valuation multiple has increased ~16%.

We can calculate a company’s forward PE by dividing its stock price by analysts’ earnings estimates for it over the coming four quarters. Forward PE is one of the most preferred ratios for making investment decisions for companies in the same sector.

Five Below is trading at a higher valuation multiple in comparison to its peers. Big Lots (BIG) is trading at a 12-month forward PE multiple of 8.7x. Dollar Tree (DLTR), Dollar General (DG), and TJX Companies (TJX) are trading at forward PE multiples of 14.4x, 15.5x, and 25.1x, respectively, as of July 5.

Analysts’ growth estimates

Analysts expect Five Below’s 2018 sales to be $1.52 billion, up 18.8%. They expect its adjusted EPS to rise 38.5% to $2.48. The company is making several investments in increasing brand awareness and expanding its store footprint, moves that are likely to continue to boost its top line. Also, tax reform benefits are likely to aid the company’s bottom line in the current year.

Peer comparison 

Analysts expect TJX Companies’ sales to rise 6% to $38.0 billion and its adjusted EPS to rise 22.5% to $4.85 in fiscal 2019. Analysts expect Dollar Tree’s sales to rise 3.2% to ~$23.0 billion and its adjusted EPS to rise 14.2% to $5.55 in fiscal 2018.

Analysts expect Dollar General’s sales to rise 8.4% to $25.4 billion and its EPS to rise 32.6% to $6.06 in fiscal 2018. Analysts expect Big Lots’ sales to fall 0.8% to $5.2 billion in fiscal 2018, but its EPS are expected to rise 2.7% to $4.57.

Wall Street’s projections on the companies’ bottom line performances are upbeat, as these retailers are likely to benefit from the newly enacted Tax Cuts and Jobs Acts. The new act lowers the tax burden for American companies by reducing the effective tax rate.

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