Why Five Below Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of discount retailer Five Below were proving their value today, climbing 8% after the chain bumped up guidance for Q4 2012.

So what: Anticipated revenue edged up slightly, from a range of $167 million to $170 million to a range of $169 million to $172 million, and the company upped EPS guidance by a penny to $0.36-$0.38. So far in the quarter, Five Below has seen a 34% increase in sales and a 4.2% jump in comps. The company also announced that some of its major shareholders, including management and board members, will offer up to 8.1 million new shares, a sale that would not dilute current shareholders.

Now what: For such a small increase in guidance, the 8% jump seems a little unwarranted. And while the secondary offering won't dilute shares, it seems to indicate that early investors are anxious to get out of a stock that went public just six months ago, putting up about 15% on the auction block. Top-line growth of 34% may look promising, but a 4% increase in same-store sales indicates that nearly all of that growth is coming from new stores. In a crowded space like discount retail, that expansion may be hard to sustain. Find out whether Five Below can keep up the pace by adding the stock to your Watchlist here.

The article Why Five Below Shares Popped originally appeared on Fool.com.

Jeremy Bowman and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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