Growth a Great Cure for IPO Burns
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
What did I tell you kids about IPOs? Facebook (NASDAQ: FB), is trading around $10 off the IPO price and almost $18 off the high it enjoyed for all of about 134 seconds the day it was made available for trading to you, me and anyone else willing to part with some hard-earned dollars. Apparently, the great “Facebook Fiasco” scared away the folks at Kayak, which began trading this week on the Nasdaq, under the ticker symbol “KYAK”, after wisely postponing the initial offering. But that’s not the only IPO being carted out before us.
Five Below (NASDAQ: FIVE), will begin trading this week, and although I am not a big fan of the retail sector as a whole (or IPOs, for that matter), especially in the tired, “growth slowing” world we live in today, I think the prospects for this company merit some consideration. From their S-1 filing, the company expects to grow by 50 stores this year, 60 the next, growing to an anticipated 2,000 stores by 2020. Believe me, I understand the sentiment, “action speaks louder than words,” but I think there could be some definite upside in the future.
Five Below currently has 199 stores, located primarily in the eastern part of these great United States. They offer a unique shopping experience, targeted at teens and pre-teens with a wide variety of products across several brands and categories, all for $5 and below. Now you get where they came up with that catchy name. Store sales comps rose a respectable 12% in 2009, over 15% for 2010, and a shade under 8% for 2011 (growth-slowing). For the past 2 fiscal years, they grew to 192 stores, from 102 (37% compounded growth), and net sales grew 54% from 2009-2011, to almost $300 million. The company recently raised the target price from $12-$14 per share, to $15-$17, which could realistically be a steal, should their rapid growth reach the goals set.
The company reminds me of another Philadelphia-based retailer, Urban Outfitters (NASDAQ: URBN), which I own for my son’s portfolio. Regional similarities aside, Urban’s run has been over 76% for the apparel and specialty retail company, which has comfortably fit in that little portfolio for over 7 years (what? Buy and hold?), including a two-for-one split in 2005. Even though that portfolio is focused in another direction, I still like Urban Outfitters, and others share those feelings, garnering a recent “Best Ideas List” mention from Morgan Stanley, rating their shares “Overweight” and upping their price target. Urban Outfitters started the year with a new CEO (Co-founder Richard Hayne), and has undergone organizational changes and efforts stressing greater importance with online sales, taking some tools from Amazon to potentially see a majority of revenue from the world wide web arena (which currently accounts for 20% of revenues). Taking another page from Amazon, Urban Outfitters plans to open another distribution center this year, to reduce shipping time for more than three-quarters of their growing online customers. They started 2012 just under $28 a share, dropping to under $24 amid reports of a four-year low for profits due to discounts in an effort to clear inventories.
I understand the growth-slowing gong has been rung to the point where it’s deafening, and odds are it won’t be silenced anytime soon (regardless of Senator Chuck Schumer’s pleas). But when there is the potential for growth, even in this climate, it makes sense to dedicate some time to take a look where we could possibly see some decent returns. If the GDP train ever does get back on the tracks, companies that are focused on growth even in the face of headwinds, are already on the right track.
kmet312 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.If you have questions about this post or the Fool’s blog network, click here for information.