Five Below falls below EMA; is it time to buy the dip?

Five Below, Inc NASDAQ: FIVE is one of the presenters at this year’s ICR Conference and, like many presenters, sent its stock on a wild ride. The company offered favorable guidance but failed to impress analysts wanting more. The news caused the market to fall 5% and move below a key EMA to open a technical buying opportunity. But is it a good one?  

This stock is in an uptrend supported by performance and analysts' sentiment; the move below the 30-day EMA is an opportunistic time to buy, and it looks like someone is buying it. Early action is down from the prior close but moving up off the low, showing support below the 30-day EMA but above the 150. If this continues, Five Below stock will likely continue its uptrend in 2024. 

Analysts and institutions support the uptrend in Five Below

The 150-day EMA is the more significant signal because the 150-day EMA represents longer-term buy-and-hold money, including institutional and analyst followers. The fall below the 30-day is a possible sell signal, but not when support is just below and at a more significant level, not to mention aligning with the trend. 

Regarding institutional holdings, Marketbeat data shows institutions holding nearly 99% of this retail stock after a year of aggressive activity. Sellers and buyers were in the market in force, suggesting rotation within the group. The critical detail is that institutional activity has been net-bullish for four consecutive quarters, a trend that continued in the first week of 2024. Regarding the analysts, Marketbeat.com tracks 18 with a consensus rating of Moderate Buy. 

The Moderate Buy rating has been steady for at least a year, but the price target is trending higher, leading the market. As it is, the consensus of $224 is about 15% above the post-guidance dip with recent targets above it. The first three revisions to show up in 2024 are mixed, including a downgrade, an upgrade and a boosted target, but their consensus is more bullish than the broader. Those revisions include the new high price target of $245, an average sentiment of Strong Buy and an average price target of $232.

An outlook for growth caused the sell-off

Five Below reiterated its guidance for Q4 and FY2023 in its ICR Conference presentation. The news was shaded by an expectation for revenue to come in at the high end of the previous range with no change to earrings. The problem is that guidance aligns with the consensus forecasts, which provides no catalyst for share prices. While a problem for now, the guidance continues to call for double-digit growth and accelerating growth supported by comp-store strength and new store count. 

2023 is the record for new store openings, more than 200, and the pipeline for 2024 is strong. The company expects to open another 200+ stores and may set another record. The long-term plans are equally robust and aid the valuation. The company plans to have more than 3,500 stores by 2030, or another 150% growth compared to today, which puts the 30X F2025 earnings multiple into a better perspective. 

Short-sellers helped move the market 5%

The short interest in Five Below is relatively high at 10% and helped move the market lower. The 5% decline may lead to a deeper dip, but some technical support targets are in play. The EMA is consistent with the middle of a trading range that has been in play for more than a year. Assuming the market continues to support the stock at this level, it should rebound quickly and retest the top of the range. If not, Five Below stock could move to the low end of the range, where support will likely be much stronger. The next visible catalyst is the earnings report due in mid-March, including guidance for the 2024 calendar year.