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What: Shares of specialty retailer Five Below (NASDAQ:FIVE) rose as much as 17% following a better-than-expected third-quarter earnings report.

So what: For the quarter, low-priced accessories retailer Five Below reported an adjusted profit of $0.03 on a 40% rise in sales to $86.6 million as same-store sales rose 8.8%. Both figures were higher than the $0.01 profit and $83.7 million in sales that Wall Street had expected, and notably higher than the $0.22 loss and $61.9 million in sales reported last year. Five Below's fourth-quarter forecast, however, will be hurt by Superstorm Sandy. The company guided expected earnings to $0.35-$0.37 on revenue of $167 million-$170 million, which is below the $0.39 profit and $171.7 million analysts were expecting.

Now what: It appears that investors are willing to cut Five Below a break today despite the weak forecast thanks to its strong same-store sales figure and the fact that only an Act of God seems to have slowed down sales. As for me, I'm not nearly as optimistic. At 53 times forward earnings, I wouldn't suggest chasing Five Below higher here. I've seen what often happens to frothy valuations in the retail sector and rarely can a retailer keep the right products in its store while maintaining double-digit growth rates for an extended period of time. Until its valuation more properly reflects its outlook, I'm perfectly happy avoiding Five Below.

Craving more input? Start by adding Five Below to your free and personalized Watchlist so you can keep up on the latest news with the company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.