Five Below Rises Above as Dollar General, Dollar Tree Falter

Quiz time: Can you name a retail chain that has opened 55 new stores already this year, and plans to open 30 more during the current quarter?

In a world where many retailers are closing up shop, one brand is thriving: Five Below FIVE.

Shares of Five Below jumped 4% after Wednesday’s close to trade at their highest level in nearly a year. The stock rallied after the Philadelphia-based retailer reported a stronger-than-expected quarter, beating estimates for both earnings and revenue. 

Standing Up to Amazon

Why is Five Below thriving while Amazon is putting other retailers out of business? In a word, it’s the experience. It’s a playful, colorful store with a fun vibe and trendy toys.

You never know quite what you’ll find at Five Below. In that sense, it’s similar to another low priced, Amazon-resistant retailer, TJX Companies Inc. TJX, parent company of TJ Maxx.

Despite Amazon’s dominance, TJX Companies has gained 21% over the past year, and 123% over the past five years. The TJX weekly chart demonstrates the steady appreciation of this stock over the past three years. 

Five Below’s returns have been less impressive. The stock has lost 12% over the past year, and has gained just 10% over the past five years. However, Five Below has gained 126% over the past two months, even prior to Wednesday’s solid earnings report. 

Further Gains Ahead?

Is Five Below about to make a run for the money? The stock’s weekly chart has formed a double bottom pattern (shaded yellow). Based on an old-school measuring technique, Five Below could climb as high as $180 — a potential 48% return from Wednesday's closing price.

Five Below is often lumped in with discount retailers like Dollar General DG and Dollar Tree DLTR, but they really have little in common. Both of those names reported earnings on Wednesday, and both beat Wall Street estimates. However, Dollar General and Dollar Tree both slipped in after hours trading, while Five Below rose. 

Tariff Troubles?

What about the effect of tariffs? Previously, Five Below imported about 60% of its goods from China. Last month, Five Below officials announced that the company would suspend shipments from China, and use other sources for its products.

Dollar Tree, another company that relies heavily on imports from China, has opted for a more flexible approach. The Virginia-based retailer said it was negotiating supplier cost concessions, dropping certain items, and shifting country of origin when possible. 

Despite tariff issues, Five Below’s chart is telling me everything I need to know. The market believes Five Below will come out ahead, despite tariff issues.

That result is reflected in the stock’s rally over the past two months. Since the April 4 open, shares of Five Below have more than doubled, gaining 126%.

At the time of publication, Ponsi was long FIVE and TJX.