Why Five Below Shares Flew

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 specialty value retailer Five Below (NASDAQ: FIVE  ) surged 15% today after its quarterly results and outlook topped Wall Street expectations.

So what: The stock has been on a roller coaster in 2013 on uncertainty over sustainable growth, but today's second-quarter results -- adjusted EPS spiked 175% on a revenue increase of 35% -- suggest that management is making solid market share headway. In fact, comparable store sales grew 6.6% over the year-ago period, giving analysts plenty of good vibes over its competitive position and ability to grow profitably.

Now what: Management now sees full-year adjusted EPS of $0.68-$0.71 on revenue of $531 million-$536 million, above its prior view of $0.65-$0.68 on revenue of $524 million-$529 million. "We believe the performance of both our new and existing stores, as well as strong execution by the entire Five Below team, have us well-positioned to deliver on our goals for the year," said Co-Founder and CEO Thomas Vellios. Of course, with the stock busting through its 52-week high today and trading at a 40-plus forward P/E, much of that bullishness might already be baked into the valuation.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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9/26/2016 4:00 PM
FIVE $41.62 Down -0.20 -0.48%
Five Below CAPS Rating: **