Why Five Below Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of discount retailer Five Below (NASDAQ: FIVE  ) were proving their value today, climbing 8% after the chain bumped up guidance for Q4 2012.

So what: Anticipated revenue edged up slightly, from a range of $167 million to $170 million to a range of $169 million to $172 million, and the company upped EPS guidance by a penny to $0.36-$0.38. So far in the quarter, Five Below has seen a 34% increase in sales and a 4.2% jump in comps. The company also announced that some of its major shareholders, including management and board members, will offer up to 8.1 million new shares, a sale that would not dilute current shareholders.

Now what: For such a small increase in guidance, the 8% jump seems a little unwarranted. And while the secondary offering won't dilute shares, it seems to indicate that early investors are anxious to get out of a stock that went public just six months ago, putting up about 15% on the auction block. Top-line growth of 34% may look promising, but a 4% increase in same-store sales indicates that nearly all of that growth is coming from new stores. In a crowded space like discount retail, that expansion may be hard to sustain. Find out whether Five Below can keep up the pace by adding the stock to your Watchlist here.