The selection of stocks for potential investment often involves a blend of technical and fundamental analysis, aiming to identify companies that are not only in strong price uptrends but also exhibit sound underlying business growth. One systematic approach that combines these elements is inspired by the methodology of trader Mark Minervini. His strategy emphasizes identifying stocks in a clear "Stage 2" uptrend using a specific Trend Template, which filters for positive price momentum across multiple timeframes and strong relative strength. This technical base is then paired with a focus on high-growth fundamentals, seeking companies with accelerating earnings, rising sales, and improving profit margins. The goal is to find leaders that are performing well in the market and have the financial engine to potentially sustain that performance.
Five Below, Inc. (NASDAQ:FIVE) emerges as a candidate that aligns with this dual-focus strategy, having been identified by a screen that applies both the Minervini Trend Template and a High Growth Momentum filter.
Technical Strength: Adhering to the Trend Template
The center of Minervini's approach is to trade in the direction of the prevailing trend, focusing capital on stocks that are already demonstrating strength. The Trend Template provides a strict checklist to confirm a stock is in a healthy, sustained uptrend. A review of Five Below's chart shows it meets these critical technical criteria:
- Price Above Key Moving Averages: The stock's current price trades comfortably above its rising 50-day, 150-day, and 200-day simple moving averages (SMAs). This alignment indicates bullish momentum across short, intermediate, and long-term timeframes.
- Positive Moving Average Alignment: The 50-day SMA ($201.77) is above both the 150-day SMA ($169.25) and the 200-day SMA ($158.72), while the 150-day SMA is also above the 200-day SMA. This sequential ordering is a classic sign of a strong, established uptrend.
- Proximity to Highs: Five Below's price is within 25% of its 52-week high of $229.33, a key Minervini rule that focuses attention on market leaders, not laggards. Simultaneously, the price is more than 30% above its 52-week low, confirming a significant recovery or advance is already in place.
- Superior Relative Strength: With a ChartMill Relative Strength (CRS) score of 96.61, the stock is outperforming nearly 97% of the market. High relative strength is a central part of the strategy, as it identifies securities that are in demand and leading the market higher, even during periods of broader indecision.
This technical picture suggests Five Below is in a clear Stage 2 advance, the exact phase where Minervini's strategy seeks to allocate capital.
Fundamental Momentum: The Case for High Growth
A strong chart is persuasive, but the Minervini philosophy stresses that the biggest winners are typically supported by powerful fundamental growth. This is where the High Growth Momentum filter adds a critical layer of analysis. Five Below displays several characteristics that high-growth investors look for:
- Accelerating Earnings Growth: The company has posted impressive year-over-year earnings per share (EPS) growth in recent quarters. Most notably, EPS growth increased to 61.9% in the last reported quarter, following a 50% increase in the prior quarter. This pattern of acceleration is a positive signal that business momentum is building.
- Strong and Rising Sales: Revenue growth remains solid, with the last quarter showing a 23.1% increase year-over-year. Analyst confidence is also growing, as shown by a significant 20.9% upward revision to next year's EPS estimates over the past three months.
- Consistent Execution: The company has beaten analyst EPS estimates in each of the last four quarters, with an average beat of over 50%. This history of exceeding expectations can build investor confidence and attract further institutional buying.
- Solid Cash Generation: The substantial 128% growth in free cash flow over the past year indicates the company's operations are highly efficient and generating ample cash, which can be used for expansion, debt reduction, or shareholder returns.
These fundamental metrics indicate the technical breakout is not occurring in a vacuum; it is supported by a business that is expanding its profitability and market position at an accelerating rate.
Technical Analysis Overview
The detailed technical report for Five Below assigns the stock a top-tier rating of 10 out of 10, reflecting exceptional technical health. The summary notes a consistent performance across all time frames and a steady outperformance relative to the overall market. The setup quality is rated a 7, suggesting the stock is consolidating in a bullish pattern, identified as a bull flag, after its strong run, which may offer a structured entry point. Key support levels are identified near $220.50 and $205.00, with immediate resistance clustered around the $222-$225 area. A breakout above this resistance zone could signal the next leg higher. For a complete breakdown of the support, resistance, and trade setup analysis, you can review the full technical report for FIVE.
Finding Similar Opportunities
Five Below serves as an example of how combining disciplined trend-following rules with a focus on fundamental growth can identify potential investment candidates. Investors interested in discovering other stocks that currently meet similar strict technical and growth criteria can explore the screening methodology directly. More results from the High Growth Momentum + Trend Template screen can be found here.
Disclaimer: This article is for informational and educational purposes only. It is not a recommendation to buy or sell any security. The analysis is based on current data and a specific investment methodology. All investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.