Issue #51

While traditional retail struggles, these two value-driven powerhouses are seeing record growth.

The retail revolution isn’t being won by the most expensive luxury brands or the trendiest flagship stores—it’s being decided in the aisles where value meets necessity. As global consumers tighten their belts and seek higher quality for lower price points, the "trade-down" effect is shifting billions of dollars toward the discounters that can deliver both scale and experience.

In today’s economic climate, two layers of the retail economy matter more than anything else: relevance to the next generation of shoppers and reach into high-growth emerging markets.

This is where the retail conversation shifts from survival to dominance—and where the most resilient, cash-flow-positive winners are emerging.

👉 One company has mastered the "treasure hunt" experience, becoming the go-to destination for Gen Z and Gen Alpha by turning discount shopping into a social media-driven event.

👉 The other is the "Costco of Latin America," building an impenetrable moat across 13 countries and serving a booming middle class that prioritizes bulk value and quality.

👉 Both are profitable, rapidly expanding their physical footprints, and have secured overwhelming "Buy" ratings from Wall Street analysts in the last 30 days.

In this edition, we break down the high-growth trend-setter and the international warehouse powerhouse—and why these two stocks sit at the foundation of the modern value-driven economy.

Five Below (NASDAQ: FIVE)

Five Below (NASDAQ: FIVE) is a leading high-growth value retailer that caters specifically to tweens, teens, and "the kid in all of us." With a distinct store experience centered on discovery and fun, the company offers a wide range of trend-right products across categories like leisure, fashion, and home—primarily priced between $1 and $5, with some "Five Beyond" items reaching up to $25. As of late 2025, the company has expanded its footprint to over 1,900 stores across 44 states, solidifying its position as a dominant force in the extreme-value retail sector.

Business Model and Revenue Streams 📦

Five Below’s business model is built on high-velocity inventory turnover and a "treasure hunt" shopping experience. Unlike traditional retailers, Five Below focuses on low-cost, high-margin trend items that appeal to Gen Z and Gen Alpha. The company operates on a simple but effective revenue model:

• In-Store Retail Sales: This is the primary revenue driver, accounting for the vast majority of income. The model relies on high foot traffic and "impulse buy" mechanics, where low price points encourage customers to fill their baskets with multiple items.
• Five Beyond Expansion: A significant strategic shift in recent years has been the introduction of "Five Beyond" sections within stores. These areas offer higher-priced tech, toys, and room decor, allowing the company to increase its average ticket size while maintaining its value reputation.

The company’s business model is highly sensitive to macroeconomic shifts, particularly inflation and trade policy. While high inflation often drives "trade-down" behavior—where middle-income shoppers move from premium retailers to Five Below—it also increases the company's cost of goods sold. Furthermore, with a significant portion of its inventory imported, Five Below is directly impacted by tariffs and global supply chain volatility. Management has actively navigated these pressures by diversifying its supplier base and implementing "selective price optimizations" to protect margins without alienating its core value-conscious customer.

Recent Performance and Corporate Developments 📈

Five Below has delivered a standout performance in the second half of 2025, marked by a significant "earnings beat" that has reignited investor confidence.

Q3 2025 Financial Highlights: 💰

• Total Revenue: For the third quarter ending November 2025, Five Below reported net sales of $1.04 billion, a robust 23.1% increase year-over-year. This marked the company's second consecutive quarter surpassing the $1 billion milestone.
• Net Profit & EPS: The company posted a GAAP diluted EPS of $0.66, and an adjusted EPS of $0.68, which shattered analyst consensus estimates of approximately $0.23. This massive 195% surprise was driven by better-than-expected "same-store sales" growth.
• Comparable Sales: Same-store sales rose by an impressive 14.3%, a sharp acceleration from the 0.6% growth seen in the same period last year, indicating that the brand's trend-right merchandise is resonating strongly with its core demographic.

Strategic Initiatives and Leadership: 🤝

There have been no major mergers or acquisitions in 2025, as the company remains focused on organic growth through its "Triple-Double" strategy (tripling the store count and doubling sales/profits over the long term). However, the company underwent a major leadership refresh. Winnie Park took the helm as CEO in late 2024, and in October 2025, the company appointed Dan Sullivan as CFO and Michelle Israel as Chief Merchandising Officer. This new "dream team" is credited with sharpening the company’s focus on Gen Alpha trends and improving operational execution.

Profitability and Fair Value 🎯

Five Below is currently highly profitable, with management raising its full-year 2025 adjusted EPS guidance to a range of $5.71 to $5.89. The company’s path to sustained profitability is supported by its strong balance sheet, ending recent quarters with over $500 million in cash and zero debt.

In terms of fair value, the stock has seen a massive recovery from its 2024 lows. While the P/E ratio (currently around 33x) may seem high compared to stagnant retailers, it is often viewed as justified given the company’s 14%–15% annual store growth rate. With a PEG ratio (Price/Earnings to Growth) near 1.95, many analysts argue the stock is fairly valued or even slightly undervalued considering its dominant position in a recession-resilient niche.

Analyst Estimates and Ratings 📊

• Consensus Rating: The consensus among major Wall Street firms is a "Buy" or "Moderate Buy." In the last 30 days, Five Below has been one of the most upgraded stocks in the retail sector following its Q3 earnings beat.
• Recent Ratings: Several firms raised their targets in December 2025. Jefferies upped its price target to $215, Truist moved to $216, and JPMorgan raised its target to $197.
• Price Target: The average 12-month price target currently sits around $177.53, though bullish analysts see a path toward $225 if the holiday season results continue the double-digit same-store sales trend.

Investor-Focused Takeaway: Is FIVE Right for Your Portfolio?

Five Below offers a rare combination of high growth and defensive stability. Its ability to capture the "disposable income" of younger generations while benefiting from the "trade-down" behavior of parents makes it a unique play in the retail space.

What to Watch in the Near Term: 📈

• Tariff Headwinds: Keep an eye on potential new trade policies in 2026, which could pressure gross margins if the company cannot offset costs through its "Five Beyond" pricing.
• Store Expansion Velocity: The company plans to open 150 new stores in the coming year; successful execution of these openings is critical to maintaining its growth multiple.
• Gen Alpha Trends: Success depends on the merchandising team's ability to continue identifying "viral" trends (like Squishmallows or skincare minis) before they peak.

Recommendation:

Five Below (FIVE) is a premier growth stock for investors looking to capitalize on the resilience of the discount retail sector. With a refreshed management team and accelerating sales momentum, it remains a top pick for those seeking exposure to the evolving US consumer landscape.

PriceSmart (NASDAQ: PSMT)

PriceSmart (NASDAQ: PSMT) is the largest operator of membership warehouse clubs in Central America, the Caribbean, and Colombia. Often referred to as the "Costco of Latin America," the company provides high-quality merchandise and services to its members at the lowest possible prices. As of late 2025, PriceSmart operates 56 warehouse clubs across 13 countries and one U.S. territory, serving a growing middle class in emerging markets with a business model rooted in volume and efficiency.

Business Model and Revenue Streams 📦

PriceSmart’s business model is centered on a high-volume, low-margin membership club format. By keeping operating costs low and focusing on a curated selection of brand-name and private-label products, the company provides significant value to its member base. The company generates revenue through three primary channels:

• Net Merchandise Sales: This is the core engine, driven by the sale of consumer electronics, groceries, and home goods. PriceSmart has successfully increased its private-label penetration to 28.1% of sales, which helps bolster margins while keeping prices competitive.
• Membership Fees: A highly stable and high-margin recurring revenue stream. PriceSmart maintains a loyal following, with renewal rates holding steady at an impressive 88.8%. In fiscal year 2025, membership income grew by nearly 15%, reflecting strong demand for the "Platinum" tier.
• Digital and Omnichannel Sales: PriceSmart has significantly expanded its digital footprint. Digital channel sales now represent 6% of total merchandise sales, growing at a 21.6% year-over-year clip as the company rolls out new native mobile apps and enhanced point-of-sale systems.

PriceSmart’s business is uniquely sensitive to foreign currency exchange rate fluctuations and regional macroeconomic policies. Since it operates in diverse international markets, a strong U.S. dollar can act as a headwind, making imported goods more expensive for local consumers. However, the company’s focus on essential goods and its status as a "value destination" allows it to benefit from trade-down behavior during local inflationary periods.

Recent Performance and Corporate Developments 📈

PriceSmart closed out its fiscal year 2025 (ended August 31) with record-breaking results, characterized by steady expansion and solid top-line growth.

Full-Year and Q4 2025 Financial Highlights: 💰

• Total Revenue: For the full fiscal year 2025, total revenue climbed 7.2% to $5.27 billion. In the fourth quarter alone, revenue hit $1.33 billion, an 8.6% increase year-over-year.
• Net Income: The company reported a net income of $147.9 million for the year ($4.82 per diluted share), up 6.5% from the previous year.
• Comparable Sales: Comparable net merchandise sales increased 7.5% on a constant-currency basis in Q4, signaling healthy demand across existing warehouses.

Strategic Initiatives and Expansion: 🤝

There have been no major mergers in 2025, as PriceSmart remains disciplined in its organic expansion strategy. A key development is the company's planned entry into Chile, a major new market that management is currently evaluating.13 In the near term, the company is doubling down on the Caribbean, with plans to open two more clubs in Jamaica and one in the Dominican Republic in 2026. Leadership has also been a focus, with a successful CEO transition to David Price and the appointment of a new CFO, Gualberto Hernandez, ensuring continuity in their growth-oriented mission.

Profitability and Fair Value 🎯

PriceSmart has demonstrated consistent profitability, fueled by operational efficiency and a strong Piotroski Score (a measure of financial health). In Q4 2025, gross margins remained stable at 15.7%, showing the company’s ability to manage costs despite global supply chain complexities.

Regarding fair value, PriceSmart is often viewed as a "steady hand" investment. While its P/E ratio (roughly 25x) is higher than some traditional grocery chains, it is lower than many high-growth retail peers. Many valuation models, including discounted cash flow (DCF) analyses, suggest a fair value in the $124 to $127 range. Given its strong cash position of over $285 million and lack of significant debt, the stock is frequently cited as a defensive growth play with limited downside risk.

Analyst Estimates and Ratings 📊

• Consensus Rating: The consensus among analysts is a "Buy." The stock has garnered significant attention in the last 30 days due to its consistent earnings growth and clear roadmap for warehouse expansion.
• Price Target: The average 12-month price target is approximately $120.00, with high-side estimates from firms like Jefferies reaching $135.00.
• Upcoming Catalyst: Investors are closely watching the January 7, 2026 earnings release for the first quarter of fiscal 2026, which will provide insight into holiday season performance and further details on the Chile market entry.

Investor-Focused Takeaway: Is PSMT Right for Your Portfolio?

PriceSmart offers a compelling way to gain exposure to emerging market consumption through a proven, Costco-style warehouse model. Its high membership renewal rates and growing digital presence provide a "moat" that is difficult for local competitors to replicate.

What to Watch in the Near Term: 📈

• Chile Market Entry: Any updates on the timeline for opening in Chile could serve as a major catalyst for the stock price.
• Currency Volatility: Watch for fluctuations in the Colombian Peso and Central American currencies, which can impact reported earnings.
• Digital Growth: Continued acceleration in e-commerce (beyond the current 6% of sales) could lead to a valuation re-rating by the market.

Recommendation:

PriceSmart (PSMT) is a "Buy-and-Hold" candidate for investors seeking a mix of international growth and retail stability. Its disciplined expansion into high-potential markets like Jamaica and potentially Chile makes it one of the most attractive discount-oriented stocks heading into 2026.

Final Take: The Trend-Setters and the Value Kings Powering Retail

The retail revolution isn’t about just having the lowest price—it’s about having the right product in the right place at the right time. As consumers globally prioritize value, the winners are those who can offer high-quality experiences at extreme discounts.

That’s where Five Below (FIVE) and PriceSmart (PSMT) stand apart.

🎮 Five Below (FIVE) — The Curator of the "Gen Alpha" Treasure Hunt ✔ Dominant player in the tween and teen demographic with a high-growth "discovery" model ✔ "Five Beyond" expansion successfully driving higher basket sizes and margins ✔ Strong Q3 earnings beat and 14% same-store sales growth signaling massive momentum ➤ Best for: Investors looking for a high-growth, domestic retail compounder that wins by capturing disposable income and viral trends.

🌎 PriceSmart (PSMT) — The Latin American Warehouse Powerhouse ✔ Massive membership loyalty with renewal rates holding steady at 88.8% ✔ Proven ability to scale the Costco model across emerging markets in Central America and the Caribbean ✔ Record-breaking $5.27B in annual revenue and a debt-free balance sheet ➤ Best for: Investors seeking international diversification and defensive value with a clear path to long-term market expansion.

Investor Insight

🧩 Want high-velocity trend retail with massive domestic store growth? → FIVE ⚙️ Want international scale and stable, recurring membership income? → PSMT

Bottom Line:

The economy doesn’t run on luxury—it runs on value and volume.

Five Below owns the attention and wallets of the next generation of US shoppers, while PriceSmart supplies the essential needs of the growing middle class across the Americas. As inflation continues to reshape consumer habits, FIVE and PSMT aren't just surviving—they are becoming the foundational retailers of the next decade.

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Happy Trading
​— Team Premium Stock Alerts