[Note: Costco fiscal year ends in August]
We believe that Five Below Stock (NASDAQ)
1. Revenue growth
In today’s inflationary environment, consumers are undoubtedly trying to stretch their budgets and seek value above all else. With this in mind, it’s no surprise that businesses like Costco and Five Below become attractive to investors. Let’s compare the revenues of both companies. Costco Revenue grew at an average rate of 12% over the past three years compared to Five Below’s revenue growth of 23%. And if we look at revenue growth over the last twelve month period, Five Below’s 23% revenue growth was again higher than Costco’s 17% revenue growth.
- Costco is a warehouse club operator. The company collects dues from its members and sells items in bulk at rock-bottom prices, while earning most of its operating margin from these membership dues. In its fiscal third quarter (ended May 8), Costco generated net sales of $51.6 billion, up 16.3% year over year (yoy). Compared to Costco’s compound annual growth rate of 8.2% over the past decade, the most recent quarter’s growth rate of 16.3% is pretty impressive. The company’s third-quarter sales were boosted by an increase in purchase frequency of 5.6% and an increase in average total transactions of 7.6%. Additionally, Costco member households grew to 64.4 million, up 6% from last year in FYQ3. Additionally, its renewal rate in the US grew to 92.3% and stood at 90% worldwide, demonstrating the retailer’s ability to retain and attract new customers to its stores.
- Five Below is a teen-focused discount retail company. Sales in the latest quarter (ended April 30) increased 7% year over year to $639.6 million. Although this was a big slowdown from previous quarters, it was still on top of a nearly 200% revenue increase in the prior year period. Management recently presented its long-term outlook, revealing that Five Below still has a lot of growth potential ahead of it. By 2025, the plan is to double sales and earnings per share. And by 2030, management expects to more than triple the store’s footprint to 3,500, up from 1,225 as of April 30.
2. Operating profit growth
Five Below’s operating income growth also compares favorably compared to Costco over the last twelve months and the last three-year period. Better revenue growth for the former led to higher operating profit.
the network of everything
Five Below has seen higher growth in revenue and operating income than Costco over the past twelve months and three years. However, it has a comparatively lower price/EBIT ratio compared to Costco. This comparatively poor performance in revenue growth and operating income for Costco compared to Five Below reinforces our conclusion that COST stock is expensive compared to FIVE. We believe this valuation gap will eventually narrow over time in favor of the less expensive name.
With inflation on the rise and the Federal Reserve raising interest rates, Costco is down 8% this year. Can you drop more? Watch How low can the COST of stock be? comparing its decline in previous market declines. here’s a performance summary of all stocks in previous market declines.
invest with trefis Portfolios that outperform the market
See everything trefis price estimates