It took a little while for the market to figure out how it felt about fourth-quarter earnings from Five Below Inc (NASDAQ:FIVE). Immediately after FIVE earnings, Five Below stock dipped. After a relatively flat after-hours close, FIVE stock has added about 3% in trading Thursday.

That seems about right. FIVE earnings were pretty much in line with expectations. Five Below already had updated its guidance for the quarter in January — and FIVE stock had dropped over 7% on that news. Final results actually were slightly better than updated — but fiscal 2018 (ending January 2019) guidance looks a bit mixed.

Overall, there simply doesn’t seem to be quite enough in the report to change investors’ minds one way or the other. From here, Five Below stock looks like a solid pick. But there are risks, one key reason why nearly 14% of FIVE’s float is sold short. I’d imagine that both bulls and bears see the quarter as confirming their existing opinions.

FIVE Earnings

As far as Q4 numbers go, they look rather solid. Revenue of $504.8 million increased 30% year-over-year, and was above consensus the high end of guidance of $491-$503 million. Comparable-store sales increased an impressive 5.9%.

EPS of $1.18 similarly beat guidance, and was $0.02 ahead of consensus, growing 34%. Backing out a $0.03 benefit from an extra week in the quarter, and another $0.03 in tax help from accounting changes, the figure still rose 28%.

Despite the beat, FIVE stock actually fell in after-hours trading, before rebounding. That’s likely because FY18 guidance looked a bit soft. Revenue is guided to $1.495-$1.510 billion, against a $1.520 billion consensus. Comparable-store sales growth is projected to be just 1-2%. That’s a notable deceleration from recent numbers: Five Below same-store sales rose 6.5% in FY17, after a 2% gain the year before.

EPS guidance looks better, with Five Below projecting $2.36-$2.42, against Street estimates of $2.36. But, as has been the case with a number of stocks of late, those estimates might have been deflated by some analysts not updating their models for the benefits of tax reform. (The low estimate was near $2, which seems far too conservative considering a ~17 percentage point benefit from tax reform.)

All told, it’s difficult to see FIVE earnings as a blowout, by any means. But between Q4 results and FY18 guidance, the report was good enough. The bull case for Five Below stock is based on solid comp growth and a tremendous amount of whitespace for new stores. That case remains intact.

The Bull Case for Five Below Stock

FIVE stock trades at about 27x the midpoint of that guidance, backing out net cash. That’s a very healthy multiple in the retail space. Only big-time growers like Burlington Stores Inc (NYSE:BURL), Lululemon Athletica inc. (NASDAQ:LULU), and Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI) are getting that type of multiple in this environment.

The bull case for those stocks is similar to that of Five Below stock. All appear to have some protection from the e-commerce threat led by Amazon.com, Inc. (NASDAQ:AMZN). Indeed, on this site, Bret Kenwell named FIVE as one of 8 stocks that can win despite Amazon. All have substantial room for share count growth — a notable opportunity at a time when many stores are shrinking their footprints.

And Five Below may have more room than just about anyone. In fiscal 2018, Five Below is planning to grow its store count by about 20%, to roughly 750 by year-end. At the ICR conference in January, the company raised its long-term target to 2,500 — more than triple that number.

Assuming per-store profitability simply remains intact, expanding the footprint alone should triple earnings. That makes a mid-20s P/E multiple look rather attractive. Any per-store earnings growth simply would be the cherry on top of what should steady, consistent growth in FIVE earnings.

The Risks for FIVE Stock

Given the short float, and the relative caution shown by investors over the last two months, not everyone is buying that bull case. And Wednesday’s report did highlight some of the risks here.

First, guidance for ~30% EPS growth next year isn’t quite as impressive as it sounds, given help from tax reform. Five Below management said on the Q4 conference call that it was reinvesting about 25% of tax reform savings into higher pay and training for its workforce. Still, that suggests pre-tax income growth in the mid-teens — with some of that growth coming from new stores.

Comparable-store growth of 1-2% similarly looks like a deceleration. FY17 revenue benefited from the fidget spinner trend, which makes for tougher comparisons this year, particularly in Q2 and Q3. But it also appears that Five Below’s long-term comp trends are going to be more in the 2-3% range — barely enough, if that, to leverage labor and rent costs.

And so FIVE bears likely see FY18 guidance as confirming their case. Same-store sales growth isn’t that impressive. And if that’s the case long-term, the store count growth might be overstated — and Five Below’s earnings growth won’t be what bulls suggest.

From here, however, that’s too pessimistic — and not enough of a reason to short FIVE stock. A 27x multiple does sound high in the context of retail at the moment. For a growing business with customer loyalty and huge room for expansion, however, it sounds reasonable, if not attractive.

As long as Five Below can keep on its current trend, there should be long-term upside in FIVE stock. Q4 earnings might not have been spectacular — but they were more than enough to stay confident in Five Below stock.

As of this writing, Vince Martin has no positions in any securities mentioned.