Five Below's ability to capitalize on the hottest new toy on the market sets shares up for success, according to Wolfe Research. The mystery squishy dumpling, created by toy manufacturer RMS USA, is the latest viral toy trend gaining traction on TikTok and other online platforms. Mystery dumplings are shaped like a steamed bao bun and packaged in a miniature bamboo steamer, coming in a variety of colors and rarity. And much like other blind boxes that took off in popularity last year, consumers are unable to see which version they've bought until after purchase and opening the package. Wolfe Research analyst Spencer Hanus pointed to Five Below's ability to capitalize on this trend as a catalyst for the off-price retailer. "Comp momentum at FIVE remains the strongest in our coverage, and our store checks this past weekend suggest the 'Dumpling' craze is accelerating. This trend is helping to drive incremental traffic, higher ticket, and greater awareness of Five Below," he wrote. "If the current demand lasts through 2026, it could drive an incremental 100-200bps to the comp. While investors are already expecting a beat in 1Q, this is further proof that the strategy is working, even if demand for this trend slows quicker than expected," he added. The analyst currently has an outperform rating on the stock. His new price target of $291, up from $275, implies an upside ahead of 26% from Tuesday's close. This mystery dumpling craze parallels that of plushy Labubu dolls, which became a worldwide sensation last year after Lisa, a performer in K-pop group Blackpink, was spotted sporting the toy. The dolls' popularity skyrocketed the revenue and shares of its maker, Pop Mart, which are listed in Hong Kong. "We don't think this trend is as big as others (yet), but it is a positive that they can chase these trends. The other swing factor is the attach of other items, and Five Below does have other products that fit this 'squishy' theme," Hanus added. The analyst also noted that Google Trends data suggests interest is accelerating in Five Below, with a significant increase in searches for "Five Below" and "Squishy Dumplings." However, he also pointed out that trends are becoming more fleeting, with searches for "Labubu" already trending downwards in favor of emerging newer trends. "Overall, we think the most important thing to watch is 'Five Below' searches, which should continue to grow as long as they benefit from the flywheel of virality. 'Five Below' search interest was up +100% YoY in March vs +67% in February and +47% in January," Hanus said. Shares of Five Below have surged 23% this year. Over the past 12 months, they have gained 200%.
