The ideal stock

Over the last few years, I've written about a lot of stocks I liked. But I don't think I've ever written about the ideal stock.
Here it is: Five Below (FIVE).

Your ideal stock has to be in a safe sector. Bargain retail to me is an excellent business (let's think about Dollarama, Dollar Tree and Dollar General). Amazon has not been a threat in that sector so far and I don't think it will in the short or medium term.

Five Below has almost zero debt. Hard to do better than that.

Return on equity: That's how much juice you could squeeze from the fruit. The current ROE is 26. The historical ROE over the last 5 years has been 23. That's very good.

Growth: The growth of Five Below has been spectacular so far. Here's the EPS.:

2013: (1,28$)
2014: 0,59$
2015: 0,88$
2016: 1,05$
2017: 1,30$
2018: 1,80$ (estimates)
2019: 2,38$ (estimates)

Beta: 0,8, which indicates a sector which is not cyclical. Which is great.

Market Cap: 3,8 billion dollars. Plenty of room to grow for many years because the market isn't saturated.

Everything looks great with that stock. Except the price of course. But that's how it's always been: you have to pay a lot for a very nice story that should remains nice for many years.

At the current price, you're paying about 29 times next year's earnings. It's a lot. But it's a very predictable sector, a very lucrative industry and don't forget the stock has no debt. You probably have many stocks with medium or even high debt on your portfolio. Sometimes, you pay 20 or 25 times earnings for a stock with a lot of debt without counting that debt in your evaluation. In fact, if you add the debt to the value of your stock, you'll see many PE ratios going up, way more than the PE of Five Below.

And, finally, that business grows organically. They don't rely on acquisitions to grow (not for now, at last). That's the best situation for a business. Because organic growth is less risky than growth related to acquisitions. 

So, in my view, this is the perfect stock. Or almost.

That's the kind of stock that you're waiting for a pullback before buying. But you shouldn't wait for a specific price target like those peewees on Seeking Alpha. You should be looking for a specific PE, like something under 25 times next year's earnings. You surely will never get that stock for less than 20 times next year's earnings, so don't set too optimistic target.