A trailing five-year return of 165% might make you assume I'm going to be writing about a tech stock, but that's the wrong answer. The company in question is actually a retailer. Five Below (FIVE 1.55%) has been a rewarding investment, and it has easily beat the broader S&P 500 by a wide margin. 

As of this writing, the stock is up 44% over the past six months and trades at a price-to-earnings multiple of 43. While this valuation looks expensive, there are three compelling reasons that investors might still want to own shares. Let's take a closer look at the bull arguments for this business.  

Rapidly expanding store footprint 

One of the most obvious factors that can attract investors to the retail stock is its quickly expanding store base. As of Jan. 28, the business had 1,340 stores across 42 states. This is up significantly from year-end 2012, when there were just 244 Five Below locations nationwide. At a time when many investors have said that it's the end of brick-and-mortar retail, this company has bucked the trend. 

It makes complete sense why the leadership team has been so aggressive when it comes to the expansion strategy. According to company's March 2022 investor day presentation, the typical Five Below location generates $2.2 million in sales annually, compared to an initial investment of $400,000. So the up-front cash outlay is more than recouped, demonstrating favorable unit economics. 

Looking ahead, management is incredibly optimistic about Five Below's trajectory, seeing the potential for 3,500 locations by 2030. This outlook is all the more impressive when you consider the fact that Five Below carries no debt on its balance sheet. 

Strong revenue and earnings growth 

It's no surprise that opening new stores helped to boost revenue and profit growth in the past. With a larger presence across the country, Five Below is able to attract more customers because it is simply closer to them. Between fiscal 2017 and fiscal 2022, sales and diluted earnings per share (EPS) increased at compound annual rates of 19.2% and 20.6%, respectively. 

As Five Below continues to gain greater scale, it will be able to better leverage its distribution and marketing capabilities, driving outsize earnings growth over time. By fiscal 2025, management expects to double revenue and EPS compared to fiscal 2021. In addition to continuing what it's always been doing, the company sees the opportunity to increase brand awareness by engaging in more social media collaborations and focusing more on e-commerce capabilities. This should help support greater demand.

Low prices are a strength 

Amid macroeconomic headwinds, the most notable being high inflation, Five Below's value proposition to customers is obvious. Its stores sell a range of merchandise, from toys and games to apparel and electronics, primarily for less than $5 an item. At a time when consumers' budgets are getting stretched thin, Five Below is a bit of a safe haven. 

Besides its low prices, about 28% of the company's customers come from households with average yearly incomes of at least $100,000. This could help Five Below in a recessionary scenario. 

"Results for both the holiday period and the quarter overall were driven by transactions, our proxy for traffic, which demonstrates the effectiveness of the value and how we delivered, especially important in this inflationary environment," CEO Joel Anderson said during the Q4 2022 earnings call. 

There's a big emphasis on constantly improving the product lineup. Michael Romanko, Five Below's chief merchandising officer, wants to push more consumables, which can drive repeat purchase behavior. Additionally, he's focused on improving its offerings of products over $5, as well as making sure items under $3 are really compelling for customers. That last point is getting a lot of attention from the management team right now. 

Add this value-based offering to the potential for tremendous growth, and investors could look past the expensive valuation to buy Five Below shares.