NEW BEARISH Plays
Five Below, Inc. - FIVE - close: 31.74 change: -0.36
Stop Loss: 33.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below
Why We Like It:
Five Below is struggling. Consumer spending accounts for almost 70% of the U.S. economy. FIVE has chosen to carve out a niche between the $1.00 store-model and discount variety stores. Considering the drop in gasoline prices from a year ago, business should be good. Low-income consumers have more money to spend. Unfortunately we are not seeing a lot of evidence that consumers are spending the money they save at the gas pump, at least they're not spending it on merchandise.
If you're not familiar with FIVE the company describes itself as "Five Below is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the teen and pre-teen customer. Five Below offers a dynamic, edited assortment of exciting products in a fun and differentiated store environment, all priced at $5 and below, including select brands and licensed merchandise across a number of category worlds: Style, Room, Sports, Tech, Crafts, Party, Candy, and Now." They currently have about 304 locations in 19 states.
Right now the trend is not FIVE's friend. In September 2014 they reported Q2 results and guided lower for the third quarter. On December 4th FIVE reported their 2014 Q3 numbers with earnings in-line with estimates. Revenues were up +24.7% from a year ago to $138 million, just a hair above expectations. However, management lowered their guidance again. You can see how investors reacted with the big drop on December 5th.
Shares got clobbered again on January 9th. That's because FIVE lowered guidance! That's the third time since September they have lowered guidance. If FIVE is struggling to generate sales now with low gas prices and consumer confidence near 11-year highs what are they going to do when gas prices rebound?
You can see that shares of FIVE did not have much of a bounce following the January sell-off. The stock now has a bearish trend of lower highs as traders sell the rallies. Currently FIVE is breaking down below support near $32.00. The next support level could be $30.00 or it could be the late 2012 lows near $28.00 or it could be the all-time low near $25.00. The point & figure chart is bearish and forecasting at $26.00 target.
The stock is definitely underperforming the market and investor sentiment has soured. The stock is likely headed for the mid $20s. I will caution readers that short interest is almost 19% of the 51.9 million share float. That could generate volatility. You may want to use small positions to limit your risk or use put options to limit your risk. Tonight we are suggesting a trigger to launch bearish positions at $31.45.
Trigger @ $31.45
- Suggested Positions -
Short FIVE stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the Apr $30 PUT (FIVE150417P30) current ask $1.25
Option Format: symbol-year-month-day-call-strike