Kerrsidale Capital: Five Below Inc (FIVE) Short Case Part II

Given the pressures ahead, we think that Five Below’s 50x P/E and 3.4x EV / revenue multiples are wildly inflated. Analysts are pricing in continued rapid store expansion over the next 5+ years combined with healthy same-store sales growth and sector-leading margins. Even if Five Below Inc (NASDAQ:FIVE) executes flawlessly, it will have trouble growing into its $2bn valuation in a reasonable period of time. If, however, there are hiccups along the way, we think that the downside for shareholders could be substantial. Investors paying 50x LTM P/E, 26x LTM EV / EBITDA and 3.4x EV / LTM revenue for FIVE are likely to be as disappointed as those in Francesca’s, Denninghouse, Tilly’s, Potbelly’s and the many other overhyped specialty retailers we have discussed in this article.