Five Below Inc. (NASDAQ: FIVE) has enjoyed a rather good run since its 2012 initial public offering. The company sells products that cost under $5 and are supposed to be targeted towards children. Now we have a secondary offering from the company, and investors should know that this offering is the insiders cashing out.
The secondary offering was raised in size due to demand, up to 11.315 million shares at $35.65 per share. This was projected to be 10.315 million shares to be sold just last week. The underwriters were listed as Goldman Sachs, Barclays Capital, Jefferies & Company, Credit Suisse Securities, Deutsche Bank Securities, UBS Securities and Wells Fargo Securities. Certain selling shareholders have granted the underwriters a 30-day option to purchase an additional 1,697,250 shares of common stock.
Here is all that investors need to know on the surface: All of the shares are being offered by selling shareholders, including certain members of Five Below’s management team and affiliates of certain members of Five Below’s board of directors. Five Below will not receive any proceeds from the sale of shares in this offering.
In short, these insiders and backers are selling just over $400 million worth of stock. Five Below’s entire market cap is about $1.95 billion. Investors should be reminded that this initial public offering was only at $17 per share, but shares were up more than 70% to close at about $26.50 on the first day of trading. Investors should also be reminded that only 9.615 million shares were sold in the actual IPO.
The market is absorbing 20% of the entire float, and the insiders are selling close to 150% more shares than were sold at the time that Five Below went public. What is amazing is that the stock’s price reaction has held up really well. The post-IPO range is $25.00 to $40.00, and shares are currently up about 1% today at $36.40. Thomson Reuters has a consensus price target of $36.57 for this stock as well. Investors should think of Five Below as a dollar store geared towards youngsters.
Five Below is an odd situation. You have insiders selling out a major portion of their shares and making personal empire-building fortunes as a result. You have the free float expanding massively. And you have a post-IPO winner that is up huge already. This has all the hallmarks of a story that the best days already may have been seen. The stock is also trading at what analysts call fair value. And now investors are buying it up even more. Maybe there is a lot more to this niche retailer story than meets the eye.
Jon C. Ogg