The Institutional Tide In Five Below Is Turning 

Institutions Shed Five Below In Q2 2022 

The institutional activity in Five Below (NASDAQ: FIVE) has been vigorous over the past year and reaching a crescendo in Q2 2022. The gross activity over the past year is worth $4.18 billion in shares which is worth nearly 60% of the current market cap but don’t read too much into it. On balance, the net of activity is nearly $0.00 which suggests to us rotation within the name. The upshot is the institutions own about 99% of the company. The down shot is that the activity is picking up and with a decidedly bearish bias. If this turns into a trend it will weigh heavily on share prices and we don’t see any reason why it won’t. 

The analysts are still rating the stock a solid Buy but both the sentiment and consensus price target are slipping. At least 10 of the analysts rating the stock came out with commentary in the wake of the Q1 report and all include a price target reduction, 1 came with a downgrade to Neutral-equivalent. The consensus of the 10 is near $155 or about $34 below the $189 broad market consensus which is trending lower. The broad market consensus is still expecting more than 50% of upside for the stock but that target is down sharply in the 1-month comparison, about 17%, and falling in a way that gives us little confidence in the price action. 

Five Below Slips On Weak Results And Outlook 

Five Below had a truly lackluster quarter and one that saps confidence in the outlook with or without management revision. The $639.6 million in net revenue is up 7% from last year but missed the consensus estimate by 200 basis points and that is not all the bad news. The revenue was driven primarily by the addition of 35 new stores and offset by a -3.6% decline in comp sales. The worst news is on the bottom line, however, as net and operating income both fell dramatically over the prior-year period. The net income fell 34% to $32.7 million leaving the GAAP and adjusted earnings below expectations as well. On the bottom line, the $0.56 in adjusted earnings is down 36% YOY and missed by $0.02. 

The guidance is also weak and we see some serious risk in it as well. The company is expecting full-year revenue to come in a range of $3.04 to $3.12 billion compared to the $3.09 billion consensus estimate. The outlook is predicated on a strong summer and back-to-school season that we are not confident in. Not only is the company already producing lackluster results but we have concerns about the consumer and consumer spending given the inflationary environment that we are in. Add in the fact inventory is up 54% from last year and we see not only a chance the company’s top line will be weak but the possibility of aggressive discounting later in the year. In that scenario, revenue will be weak, margins will compress, and earnings will be very disappointing. 

Five Below Is Not A Cheap Buy 

Trading at over 25X its earnings outlook Five Below is not a cheap buy. Based on the valuation, the results, and the outlook we think investors and institutions will continue to rotate out of the name and into higher-quality retailers that proved their strength during the quarter. In this light, we think Five Below will retest the $111 level for sure and most likely move below it. Our best target for firm support is near $100. 

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About Thomas Hughes

[email protected]

Experience

Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights. 

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