Important points
CNBC’s Jim Cramer said Wednesday that Wall Street misread Five Below’s latest quarterly results, giving investors an opportunity to scoop up shares at a cheap price. Five Below shares soared at the start of trading Thursday after the discount retailer beat expectations for its fiscal second quarter and raised its full-year outlook overnight. However, the gains quickly disappeared, and the stock ended the day down 1.3%. “This stock deserved to skyrocket nearly 7%. It’s insane to see that rally evaporate,” the “Mad Money” host said. “I say buy, buy, buy.” Mr. Kramer said investors appear to be focusing too much on signs that Five Below’s exceptional comparable sales growth has peaked. The 14.1% increase in the most recent quarter was slower than the 22.7% increase in the first quarter, and the company’s full-year forecast suggests a further slowdown for the rest of the year. But he said Five Below’s 14.1% comp sales still easily beat Wall Street expectations. “Yes, mathematically Five Below’s same-store sales are slowing, but that’s just the law of large numbers,” Kramer said. “I don’t know how anyone would look at that and see it as a sign of weakness.” Investors should instead focus on the turnaround under CEO Winnie Park and what her leadership means for future results, he said. Five Below has now exceeded expectations in each of the six quarters she has overseen. “I think her strategy is clearly working, but the reason stocks are undervalued is because Wall Street is worried about high oil prices putting pressure on consumers, and people are endlessly finding reasons to quibble over objectively impressive numbers,” Cramer said. Five Below’s new full-year comparative sales forecast is for growth of 6% to 8%, with growth in the range of 10% to 12%. The company also raised its adjusted earnings forecast to $9.83 to $10.31 per share. Kramer said a strong outlook and lackluster stock price reaction are weighing down Five Below’s stock price. According to him, before the news, the stock was trading at about 27.5 times the midpoint of the company’s earnings forecast, but after the news, it rose to about 24 times. “The midpoint of the new, higher earnings estimate suggests more than 50% year-over-year growth, so this seems to me an incredibly fair price to pay. I’d honestly say this is a steal,” Cramer said. Subscribe to CNBC Investing Club today to follow Jim Cramer’s every move in the markets. Questions about Cramer’s disclaimer? Call Cramer: 1-800-743-CNBC Want a deeper look into Cramer’s world? Punch him! Mad Money Twitter – Jim Cramer Twitter – Facebook – Instagram Have questions, comments, or suggestions about the Mad Money website? madcap@cnbc.com
