Both of these stocks had excellent quarters; the first remains a Buy; the second a Hold for now.
Buy: Five Below (FIVE)
From Cabot Growth Investor
Five Below (FIVE) didn’t do much for the first few months of the year; in fact, the stock made no progress from its peak in early January through the end of May. It was tedious, but the stock broke no rules and business by all indications was still in fine shape, so we held on. And we’re glad we did!
FIVE soared on earnings in early June following a blowout quarter. Not only did sales (up 27%) and earnings (up 123%) top expectations, but we think this was effectively a coming out party for the stock, with institutional investors now convinced that Five Below not only has years of growth ahead of it, but that (a) the likelihood of that growth is very high, giving them confidence to pay up, and (b) that even management’s long-term outlook of 2,500 stores (up from 675 at the end of 2017) could be conservative.
Short-term, of course, the earnings move (the stock was up 40% in one week!) was so big that FIVE could easily sit around for a bit. But given that the stock’s original breakout was only back in November 2017, we think this cookie-cutter story has room to run. We have it rated Buy, ideally on weakness.
Michael Cintolo, Cabot Growth Investor, www.cabotwealth.com, 978-745-5532, June 21, 2018