This out-of-favour retailer stock will be on the move this week

If you think that the discounts at your local Five below (FIVE 1.49%) are steep, you should check the share price. Shares of the cheap-chic discounter have lost more than half their value this year, one of 11 investments with a market capitalization of more than $4 billion to suffer the portfolio-crushing fate.

It’s been a difficult year filled with financial misses, analyst downgrades and a shakeup at the top for the brick-and-mortar chain that sells most of its offerings for $5 or less. This isn’t the best Five Below, but with the stock down 61% in 2024 — down nearly two-thirds from its peak three summers ago — is this a buying opportunity? As the chain looks to report its fiscal second-quarter results later this week, the stock will be on the move.

Look below

Five Below seemed destined to return to its all-time highs in the 2023 holiday shopping season. It wasn’t until March of this year that investors learned things weren’t going so well for the big-box chain, popular with tweens and tweens. who want to earn more money. The retailer missed Wall Street targets on both ends of the income statement for the fiscal fourth quarter. The guidance was not very inspiring.

Things got worse three months later, with another miss on the top and bottom lines. Same-store sales also fell 2 percent for the fiscal first quarter, less than the steady 2 percent growth it was targeting in March. It also lowered its outlook for the full year.

There were more to come. Just six weeks later, the retailer announced that longtime president and CEO Joel Anderson was leaving the company. It also said compensation fell 5 percent in the first 10 weeks of the fiscal quarter ended last month, bracing investors for a 6 percent to 7 percent decline for the fiscal second quarter.

There is a lot of pain in the last five months and the volatility will continue. Five Below will announce its financial results after the market closes on Wednesday. He has a lot to prove.

Image source: Five Below.

The long way back

The chances of a breakout performance are slim. Five Below has revised its short-term guidance three times since the end of March. The timing suggests another downward revision is coming.

However, the reason for its helmsman’s departure and mid-quarter shift in focus is that the bad news should be largely factored into the current stock market chart. Any positive news about the board’s search for a new CEO or the chance that it was too conservative with its gloomy forecasts last month could send the stock bouncing back like one of its big inflatable balls.

The former Five Below CEO had an ambitious goal of growing the concept’s number of stores from 1,500 to 3,500 over the next six years. This is the kind of climate in which Five Below can announce that it is scaling back its expansion plans and the market applauds. The company has been able to grow its footprint quickly and profitably without damaging its cash-rich balance sheet outside of mounting lease obligations.

This is not a broken company. The company will be negative this year, but that has happened in two previous years in the last decade. Five Below has recovered in the past. In this fickle world of retail stocks, Five Below is historically cheap, trading for less than 16 times trailing earnings and a top-line multiple of just 1.3. It may take time for the storm clouds to clear, but the upside seems to outweigh the downside right now.