The rally was Wall Street's response to the impressive growth figures that the youth-focused retailer announced, especially late in the year. Five Below's third-quarter revenue soared 29% with help from a market-thumping 8.5% jump in comparable-store sales.
This increase trounced the guidance that CEO Joel Anderson and his team had issued three months earlier and led to a significant upgrade to management's full-year profit and sales forecast.
Executives are targeting comps gains of 5% over the holidays, which should translate into net income of approximately $100 million for the full 2017 fiscal year. That puts the stock's valuation at a steep 37 times annual profits, and that premium valuation might make it difficult for shares to post another year of market-beating gains in 2018.
However, Five Below's healthy momentum suggests management is right in their prediction that the market will support as many as 2,000 locations over time. With just 600 stores currently in operation, that's a lot of potential room for growth.