Mizuho upgrades five below on valuation, sees over 20% upside

Investing.com -- Mizuho upgraded Five Below to "outperform" from "neutral," saying a nearly 30% pullback in the discount retailer's shares has created an attractive entry point as customer demand, merchandising improvements and social media-driven sales trends continue to support growth.

The brokerage maintained confidence in the company's long-term momentum despite expecting comparable sales growth to slow after a blockbuster first quarter.

The brokerage lowered its price target slightly to $220 from $225, implying more than 20% upside from current levels, while arguing the stock's valuation has become overly depressed. It said the shares trade below 20 times forward earnings, a level historically seen only during periods of significant disruption such as leadership changes or broader market selloffs.

Mizuho expects Five Below to outperform Wall Street forecasts in the second half of fiscal 2026, projecting comparable sales growth of 8%-9% and adjusted earnings per share of $9.22, above consensus estimates. The brokerage also expects management to raise its full-year outlook when it reports second-quarter results in September.

The analysts said the retailer continues to retain customers gained during the recent viral "squishy" toy craze, while paid influencers on Instagram and TikTok are expanding the brand's reach among teens and families. Mizuho also sees higher average store sales, increased digital marketing, and potential store layout changes as additional drivers of earnings growth and margin expansion.

While Mizuho expects comparable sales to normalize from the first quarter's 22.7% gain, it said the business remains well positioned to sustain positive sales growth through fiscal 2027, supported by strong customer retention, new product trends and continued store expansion.

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