Is Five Below, Inc. overvalued or undervalued?

As of 26 March 2025, the valuation grade for Five Below, Inc. has moved from fair to very expensive, indicating that the company is overvalued. The current P/E ratio stands at 27, significantly higher than the industry average of approximately 25.9, while the EV to EBITDA ratio is 12.99, which also suggests a premium compared to peers like Kohl's Corp., which has an EV to EBITDA of 4.01. Additionally, Five Below's ROCE is a strong 22%, but this does not sufficiently justify its elevated valuation metrics.
In comparison to its peers, Five Below's valuation appears stretched, especially when juxtaposed with Kohl's Corp., which is rated very attractive with a P/E of 13.87. The stock has underperformed relative to the S&P 500 over the long term, with a 3-year return of just 1.66% compared to the S&P's impressive 58.74%. Overall, Five Below, Inc. is deemed overvalued based on its current financial ratios and peer comparisons.