A New Bargain Hunter's Dream

Focus: STOCKS

Michael Cintolo Image Michael Cintolo Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

This recent IPO has launched well and occupies a compelling space between dollar stores and discount box stores, with a well segmented market of junior spenders, observes Mike Cintolo of Cabot Top Ten Trader.

Five Below (FIVE) is a newly public retailer that targets teens and pre-teens with cheap, but fun stuff—with everything priced at $5 or less.

Given the success of dollar stores in recent years, we're intrigued by the company's potential. Indeed, while the stock is very new (it came public on July 19), it already has a terrific history of growth.

Revenues in each of the last four quarters have risen 46% to 54%. About half of Five Below's sales are from leisure items, with 30% in the fashion and home category, with the rest being party and snack items.

What we really like is that the firm's stores are relatively small at 7,500 square feet, and pay back the initial investment in less than one year. In fact, new stores typically bring in $1.5 million in revenue during their first year.

And that means Five Below can expand like mad and not run out of capital—the company had just 199 stores in 17 states at the end of April, and plans on opening 50 new stores in 2012 and another 60 stores in 2013. Moreover, the company has been expanding quickly for a couple of years now, so management knows how to find real estate, set up shop and get the money flowing in.

Same-store sales have been positive for 24 straight quarters, including a 10.4% jump in the April quarter.