On the four Ms, Five Below earns 76 for management and 94 for moat. The management score rests on a return on invested capital of 7.0% and a gross margin of 32.0% — figures that describe a business earning a respectable return on what it employs. Debt sits at 0.93x equity. The wide moat and strong management are not the same judgement, and the gap between them is where the argument about this business sits.
Three independent anchors set the price worth paying. Growth is modelled at 15.0% a year, below the 19.0% actually measured over the last decade — the model caps growth rather than extrapolating a good run forwards. The exit multiple assumed is 30.0x. That produces an intrinsic value of $334.20, a 10-CAP price of $119.07 and a payback time price of $187.96, with the value zone set at the highest of the three, $187.96. Today's price of $221.17 sits 18% above it.
The operating figures describe a business performing at a high level; the price asks for that performance to continue and then some. A margin of safety score of 76 is the measure of how little room that leaves for being wrong.
| Price | $221.17 |
| Market cap | $12.2B |
| P/E ratio | 19.9x |
| Return on invested capital | 7.0% |
| Gross margin | 32.0% |
| Debt to equity | 0.93x |
| Free cash flow yield | 3.9% |
| Growth rate used | 15.0% |
| Growth rate measured | 19.0% |
| Exit multiple assumed | 30.0x |
| Company | Moat | Buy price |
| Dick's Sporting Goods Inc (DKS) | 67 | $100.64 |
| Tractor Supply (TSCO) | 77 | $13.09 |
| Etsy Inc. (ETSY) | 43 | $68.43 |
| Warby Parker Inc-Class A (WRBY) | 73 | $5.50 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Five Below rather than accepting ours.