Yahoo Finance Is Five Below, Inc.’s (NASDAQ:FIVE) Liquidity Good Enough?
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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Five Below, Inc. (NASDAQ:FIVE), with a market cap of US$7.1b, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine FIVE’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into FIVE here.
See our latest analysis for Five Below
Is FIVE’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For FIVE, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with FIVE, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can FIVE pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Five Below has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$239m, it appears that the company has been able to meet these commitments with a current assets level of US$599m, leading to a 2.5x current account ratio. Generally, for Specialty Retail companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
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FIVE has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, but some level of debt could also boost earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how FIVE has performed in the past. I suggest you continue to research Five Below to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for FIVE’s future growth? Take a look at our free research report of analyst consensus for FIVE’s outlook.
Valuation: What is FIVE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether FIVE is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
