Image source: Five Below.

Deal-seeking teens flock to Five Below (FIVE -0.97%) for trendy merchandise at big discounts, but the same can apparently be said about an investment in the big-box retailer. Citi analysts Alvin Concepcion and Julian Groover initiated coverage of Five Below with a buy rating and a $50 price target.   

Concepcion and Groover see the recent retreat in the shares -- the stock is trading 25% below its summertime peak -- as a compelling buying opportunity. They see Five Below able to achieve a 19% compound annual growth through the next three years, fueled mostly by opening new stores but also through a 3% annual uptick in comps. Citi's analysts feel that earnings will grow even faster, clocking in at a 22% annualized clip. Those numbers would make Five Below one of the faster-growing plays in bricks-and-mortar retail these days. 

The analysts see the stock's recent pullback as a chance to get in, especially since Wall Street's profit targets have inched slightly higher since the stock peaked two months ago. The bargain maker is a bargain, but will the chain convince more than just Citi's analysts?

Gimme five

Five Below went public at $17 four years ago, and it has gone on to more than double in that time. If Citi's price target is met, it will mean that the stock has nearly tripled. 

Five Below lives up to its name, stocking items that sell for $5 or less. This isn't necessarily dollar store junk. Five Below offers everything from sundresses to shoes to consumer electronics accessories. It's the ultimate "cheap chic" shopping destination, making it popular with teens and young adults looking to get more bang out of their bucks. 

Net sales soared 21% in its latest quarter, propelled by a 3.1% uptick in comps and an 18% spike in its store count. It closed out its fiscal second quarter with 491 stores. There's still plenty of room to expand for Five Below. It just opened its first store in Minnesota last month, but there are another 19 states where the concept has yet to break ground.

This is a scalable model, and Five Below is making the most of it with operating income and earnings growing faster than the top line, up 36% and 38%, respectively. The stores are relatively cost-effective to set up, and Five Below typically makes its initial investment back within the first year.

Five Below's popularity has been consistently growing. Comps have been positive for 41 consecutive quarters. That's more than a decade of quarterly comps growth, helping to illustrate the concept's all-weather appeal. When the economy's buzzing, folks have more money to spend. When the economy's in the tank, young shoppers want to stretch what they have by turning to deep discounters. 

Citi's analysts feel that there is good chance that Five Below exceeds market expectations, and not just because that's exactly what it's done in mowing through analyst profit targets over the past year. Citi sees strong box office receipts and toy trends, indicators that suggest that Five Below's youngish shoppers aren't afraid to spend money. Five Below is at the right place at the right time with a ceiling as high as you will find in many of its stores. Hitting $50 would take it back to August's highs, but the long-term goals for the stock have to be more aggressive.