Investing.com -- Bernstein upgraded Five Below to Outperform from Market-Perform, arguing the discount retailer's recent operational improvements have strengthened its long-term growth outlook beyond the temporary boost from viral product trends.

The brokerage raised its price target to $250 from $247, implying roughly 22% upside from the stock's July 20 closing price of $204.14. Bernstein said the retailer is now better positioned to deliver sustainable mid-single-digit comparable sales growth, supported by improved merchandising, marketing and store execution, alongside continued store expansion and share buybacks.

Analysts said investors have become overly focused on the potential slowdown after a first-quarter 23% comparable sales gain fueled by the "Squishy Dumpling" toy craze. While acknowledging comparisons will become more challenging over the next year, Bernstein argued the underlying business has materially improved, with sustainable comparable sales growth now closer to the mid-single-digit range versus about 3.5% before the pandemic.

The brokerage attributed the stronger outlook to CEO Winnie Park's strategic changes, including a greater focus on trend-driven merchandise, improved store layouts, more effective digital and social media marketing, and increased pricing power in a relatively benign competitive environment. It also expects the retailer to maintain high-single-digit sales contributions from new store openings while resuming meaningful share repurchases.

Bernstein increased its fiscal 2026 adjusted EPS estimate to $9.74 from $9.28 and its fiscal 2027 forecast to $10.04 from $9.33, projecting earnings per share growth of more than 20% annually between fiscal 2025 and fiscal 2028. The firm also lifted its medium-term comparable sales forecast and expects annual store additions to remain robust, supporting a low-double-digit sales growth trajectory.

Despite the upgrade, Bernstein cautioned that the call is based on a medium-term investment horizon, warning that comparable sales growth is likely to decelerate over the next four quarters as the company laps unusually strong demand from recent product fads and tariff-related pricing benefits, potentially creating periods of share price volatility.