Discount retailer Five Below Inc (NASDAQ:FIVE) is enjoying this year what many of its competitors can only dream about — robust market performance.

Since its January opener, FIVE stock has jumped nearly 22%. In contrast, Dollar General Corp. (NYSE:DG) is only up a pedestrian 2%, while Dollar Tree, Inc. (NASDAQ:DLTR) has dropped an alarming 24%.

Considering the volatile backdrop for discount stores, can investors still ride the momentum in FIVE stock?

I’m going to be blunt: as much as I love what Five Below is doing, I hate chasing companies to all-time highs. Between fall 2012 through early 2017, FIVE shares trended in a horizontal range at around $35 to $40. But since March of last year, the company has veritably mooned.

Again, I’m not itching to dive in at this very moment … should FIVE stock hit a corrective phase, however, temptation might get the better of me.

For one thing, its first quarter fiscal 2019 earnings results were very convincing. Against an earnings per share consensus estimate of 32 cents, Five Below delivered 39 cents, a near 22% positive surprise. Just as importantly, management below the year-ago quarter’s results out of the water, where they managed a 15 cent EPS.

On the revenue side, Five Below hauled in $296.3 million, which was up 1.5% from consensus estimates of $292 million. Not only that, same-store sales were up 3.2%. In Q1 2018, the company delivered $232.9 million.

However, investors were particularly enthused about the bullish guidance. Management raised their target for Q2 EPS between 36 to 38 cents, up from the previous 34 cents. Full-year EPS is now $2.42 to $2.48, whereas the prior estimates ranged from $2.36 to $2.42. This new expectation is also up from the consensus view of $2.40.

What Makes FIVE Stock Stand Out?

Despite these strong numbers, and management’s optimism for the future, many investors are hesitant, and for good reason. As I mentioned at the top, discount-dollar stores aren’t lighting up the markets. In Dollar Tree’s case, it’s a massive liability.

A popular thesis suggests that as the economy improves, so too should consumers’ willingness to open their wallets. Indeed, with multi-year record-low unemployment and soaring consumer sentiment, significant opportunities exist for any retailer.

But as I argued in my recent write-up for Dollar General, the incentive to buy items, especially food products, at these cheapo retailers declines sharply with increased income. Let’s just be brutally honest here – you’re going to shop at Dollar General if you’re desperate. When you’re not, you’re likely to choose more decent fare.

Granted, DG shares have jumped up more than 8% since my article published. Still, I’m not going to change my argument. So long as more people have more money in their pockets, I can’t imagine them buying imitation cheese.

But where I’m more confident with FIVE stock is the underlying company’s business strategy. Catering specifically to the teenage market and younger, the company is already targeting a cash-strapped demographic, irrespective of the economy. By logical deduction, Five Below is also focusing on products that kids want, and nothing more.

The results are firmly evident in the financials. Over the past three years, revenues have substantially increased, while the inventory turnover rate has quickened.

I’m especially impressed with how Five Below engages its core audience. For instance, look at their Instagram account versus Dollar General’s account. FIVE features bright, eclectic colors designed to attract young customers. DG, on the other hand? It’s bland and uninspiring.

I also like FIVE’s YouTube account, which showcases how their products look and work.

A Great Company, But Pricey

I have the feeling most people will balk at FIVE stock when they consider the price-earnings ratio. At 44-times trailing earnings, and almost 33-times forward earnings, unlike their products, FIVE isn’t cheap. I’m not even sure if it’s a great deal at this valuation.

On the other hand, it is a great company; hence, the substantial premium. Overall, Five Below features one of the best financials I’ve seen in any publicly-traded organization. It has a very strong balance sheet, unencumbered with zero debt. Management boasts excellent profitability margins, return on equity, and superior revenue and earnings growth. Moreover, these key metrics are improving in recent years.

At the same time, the biggest risk is that the markets have already priced-in the strong financials. I just don’t want to jump onboard FIVE stock now in case the corrective phase begins shortly. However, if I see a substantive pullback, I’d be crazy not to at least consider it.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.