In November, a resistance level formed in the chart of Five Below Inc. (FIVE). Now the stock is once again approaching this level and a breakout could occur soon.
FIVE is a value-oriented retailer with more than 900 stores. The stores cater to teen and preteen consumers and feature a wide variety of merchandise priced $5 and under. Products include discretionary items such as sporting goods, toys, electronics, beauty products, home goods, and snacks.
The company has been focusing on enhancing its merchandise assortment, improving its supply chain, and strengthening its digital capabilities. FIVE’s focus on essential goods has served it well during the pandemic. The company’s goal of expanding its store base and improving the in-store experience should draw more foot traffic.
FIVE entered last quarter with a strong balance sheet as the company’s business funds its growth and generates cash. It ended the quarter with more cash and cash equivalents than the previous quarter.
While growth over the past year was negative, both sales and earnings are expected to grow significantly next year. The stock is considered overvalued with a P/E of 88.5.
FIVE has shown recent and long-term momentum which has led to a “Strong Buy” rating in our POWR Ratings system and a grade of “A” in Trade Grade. This is reflected in the company’s stock chart.
Take a look at the 1-year chart of FIVE below with added notations:
Chart of FIVE provided by TradingView
After bottoming out in March, FIVE has been on a solid rally to new highs. Over the past month, the stock has tested the $160 level (red) and has been unable to surpass it.
A solid close above that $160 mark will most likely lead to another leg up for FIVE. The possible long position on the stock would be on a breakout above that level with a stop placed under it.
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FIVE shares rose $2.07 (+1.32%) in premarket trading Tuesday. Year-to-date, FIVE has gained 23.94%, versus a 14.10% rise in the benchmark S&P 500 index during the same period.
About the Author: christian
Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock. More...
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