The Affordable Growth screen is designed to find companies that combine solid earnings expansion with a valuation that has not already priced in every year of future success. FIVE BELOW (NASDAQ:FIVE) is a specialty value retailer that currently fits that profile, carrying a fundamental rating of 7 out of 10 and a combination of strong growth, acceptable valuation, and healthy financials.
How the Affordable Growth screen works
The Affordable Growth screen combines several ChartMill fundamental ratings to identify companies that offer a balance between expansion and price:
- Growth should be well above average, with earnings momentum that is expected to continue.
- Valuation should not be extreme, and any premium should be justified by future growth.
- Profitability and health should be solid enough to support continued reinvestment.
Five Below scores 8 for growth, 5 for valuation, 8 for profitability, and 8 for health. That mix aligns with the screen's goal: the company is growing quickly, but its valuation is not in stretched territory, and its financial profile is strong enough to fund that growth.
Growth is the standout feature
The fundamental report shows a company with strong recent momentum and a solid forward outlook.
- EPS grew 51.32% over the past year, with a 25.03% average annual EPS growth rate over the longer term.
- Revenue grew 25.87% last year, while the longer-term average annual revenue growth is 19.41%.
- Forward estimates remain robust: EPS is expected to grow by 27.72% per year on average, with revenue growth projected at 14.03% annually.
On the valuation side, the picture is more nuanced. The trailing P/E of 27.02 is roughly in line with the specialty retail industry average and the S&P 500, so the stock is not unusually cheap on that basis. However, the report's compensation-for-growth component is more encouraging. The PEG ratio is low, and with a forward P/E of 21.66, the market is paying a more measured price for the expected expansion. In addition, 63.11% of the company's industry peers are more expensive based on price-to-free-cash-flow, which suggests the stock has not been fully repriced for its growth potential.
Investors who want to review the full fundamental breakdown can use this fundamental analysis report.
Health and profitability give the growth a foundation
Fast growth is only useful if the company can sustain it, and Five Below's financial health supports that case. The company carries no debt, putting its debt-to-equity and debt-to-free-cash-flow ratios at zero, and its Altman-Z score of 4.84 places it among the strongest in its industry. Current and quick ratios of 2.10 and 1.27 respectively point to no near-term liquidity pressure.
- Return on equity: 19.05%
- Return on assets: 8.72%
- Return on invested capital: 10.30%
- Operating margin: 11.04%
- Profit margin: 8.67%
These profitability metrics are all better than the majority of industry peers, with the operating and profit margins particularly strong. The main caveat from the fundamental report is that the three-year average ROIC of 8.16% sits below the current cost of capital, meaning the company has not consistently generated returns above its capital costs. That is worth monitoring as the company continues to expand its store base and e-commerce operations. The company also does not pay a dividend, so the investment case is built around growth and capital appreciation rather than income.
Bottom line
Affordable growth investing is not simply about buying the fastest grower; it is about finding a company where the market's expectations are still reasonable relative to the underlying earnings power. Five Below demonstrates that combination: strong past and projected growth, a valuation that is not stretched, and a balance sheet with no debt. The valuation score of 5 reflects the fact that the stock does not screen as a deep value name, but the growth and profitability scores help explain why the multiple is justified.
For investors who want to find other stocks with a similar fundamental profile, the affordable growth screen provides a broader list of candidates using the same methodology.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »
View the Zacks #1 Rank List
Five Below (NASDAQ:FIVE): Affordable Growth with Strong Fundamentals
The Affordable Growth screen is designed to find companies that combine solid earnings expansion with a valuation that has not already priced in every year of future success. FIVE BELOW (NASDAQ:FIVE) is a specialty value retailer that currently fits that profile, carrying a fundamental rating of 7 out of 10 and a combination of strong growth, acceptable valuation, and healthy financials.
How the Affordable Growth screen works
The Affordable Growth screen combines several ChartMill fundamental ratings to identify companies that offer a balance between expansion and price:
Five Below scores 8 for growth, 5 for valuation, 8 for profitability, and 8 for health. That mix aligns with the screen's goal: the company is growing quickly, but its valuation is not in stretched territory, and its financial profile is strong enough to fund that growth.
Growth is the standout feature
The fundamental report shows a company with strong recent momentum and a solid forward outlook.
On the valuation side, the picture is more nuanced. The trailing P/E of 27.02 is roughly in line with the specialty retail industry average and the S&P 500, so the stock is not unusually cheap on that basis. However, the report's compensation-for-growth component is more encouraging. The PEG ratio is low, and with a forward P/E of 21.66, the market is paying a more measured price for the expected expansion. In addition, 63.11% of the company's industry peers are more expensive based on price-to-free-cash-flow, which suggests the stock has not been fully repriced for its growth potential.
Investors who want to review the full fundamental breakdown can use this fundamental analysis report.
Health and profitability give the growth a foundation
Fast growth is only useful if the company can sustain it, and Five Below's financial health supports that case. The company carries no debt, putting its debt-to-equity and debt-to-free-cash-flow ratios at zero, and its Altman-Z score of 4.84 places it among the strongest in its industry. Current and quick ratios of 2.10 and 1.27 respectively point to no near-term liquidity pressure.
These profitability metrics are all better than the majority of industry peers, with the operating and profit margins particularly strong. The main caveat from the fundamental report is that the three-year average ROIC of 8.16% sits below the current cost of capital, meaning the company has not consistently generated returns above its capital costs. That is worth monitoring as the company continues to expand its store base and e-commerce operations. The company also does not pay a dividend, so the investment case is built around growth and capital appreciation rather than income.
Bottom line
Affordable growth investing is not simply about buying the fastest grower; it is about finding a company where the market's expectations are still reasonable relative to the underlying earnings power. Five Below demonstrates that combination: strong past and projected growth, a valuation that is not stretched, and a balance sheet with no debt. The valuation score of 5 reflects the fact that the stock does not screen as a deep value name, but the growth and profitability scores help explain why the multiple is justified.
For investors who want to find other stocks with a similar fundamental profile, the affordable growth screen provides a broader list of candidates using the same methodology.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »