A Growth and Value Stock All In One

Today, I want to talk about a growth and value stock that appeals to those two seemingly disparate investment types. But first, I want to talk about Certs …

The Drive for FIVE

TV viewers of a certain age (I mean “old”) may remember a commercial for Certs that featured a debate about whether it was a breath mint or a candy mint. For some reason, the refrain that Certs was “two … two… two mints in one!” has an odd sticking power in the memory. And Certs are still around.

I have been thinking about Certs because something unusual just happened with the stock of Five Below (FIVE), a chain of retail stores that sells a variety of merchandise aimed at teens, all of which is priced below five dollars.

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FIVE was just featured as one of the stocks in Cabot Top Ten Trader, an advisory that comes out every Monday with a list and analysis of the 10 best growth stocks of the previous week. I’ve always thought that an appearance in Top Ten was like a badge of honor for a stock, and FIVE has been featured 10 times since it made its first appearance in August 2012.

That’s not unusual, of course. But what is unusual is that the stock was also just featured as a selection in Cabot Benjamin Graham Value Investor’s Cabot Enterprising Model. Cabot Benjamin Graham Value Investor is a value-based advisory that looks for stocks trading at a significant discount to their true worth. But the Cabot Enterprising Model allows Chief Analyst Roy Ward to seek out value stocks that represent good risk/reward balances.

Roy sees Five Below as an exception to the malaise that’s hitting U.S. retail stores (and retail stocks). The company’s appealing range of products and low price have been proving to be an irresistible lure for teens and pre-teens, pushing Five Below to four years of revenue growth above 20% per year. The company is also expanding its number of locations aggressively, with 100 new stores planned for 2017 to add to the current number of 555.

Roy always sets a Maximum Buy Price for his stocks, and his Max Buy Price for FIVE is 52.52 or below. He sees a 54% upside to the stock, forecasting that it will rise to his Minimum Sell Price of 79.35 within one to two years.

FIVE is now trading below its Max Buy Price for Roy’s Enterprising Model and is also within its Top Ten buy range of 49.5 to 52.

Here’s what a daily chart looks like.

Five Below (FIVE) qualifies as both a growth and value stock.There are no guarantees, of course. Five Below will be reporting its first-quarter results in the first week of June, with analysts expecting a hair over $230 million in revenue and 13 cents per share in earnings.

FIVE is a Growth and Value Stock … For Now

If Five Below’s Q1 results please investors, FIVE could race higher, which would be a positive for Top Ten’s more momentum-based model. But that rally would likely push the stock out of Cabot Benjamin Graham Value Investor’s buy range.

This is a good illustration of the difference between growth and value stock investors, with growth investing types more sensitive to short-term moves and value investing aficionados paying more attention to the long-term effects of fundamentals. Personally, I think it’s great that Cabot offers advisories for every style of equity investing. And it’s a nice coincidence that, at least for a few days, one stock looks attractive to both styles.

Timothy Lutts

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