Fidget spinner bubble popping: Five Below downgraded on slowing sales of the fad

• KeyBanc Capital Markets tells its clients it believes fidget spinner sales are slowing in recent weeks.
• Five Below, a big seller of fidgets, is one of the best-performing retail stocks in the market this year.
• The company's shares are up 28 percent year to date compared to the SPDR S&P Retail ETF's negative 6 percent return.

Fidget spinners

Chesnot | Getty Images

The fidget spinner craze may be ending.

KeyBanc Capital Markets told its clients Five Below's fidget spinner sales are slowing.

As a result the firm lowered its rating on the retailer to sector weight from overweight.

"While fidget spinners are still contributing to sales at FIVE, our channel checks indicate sales have been decelerating in recent weeks, potentially at a pace not expected by the market," analyst Bradley Thomas wrote in a note to clients Tuesday entitled "Fading the fidget fad."

"We believe the performance of the stock YTD is already pricing in ... enthusiasm for spinners. As such, we believe the risk/reward for FIVE shares are more balanced over the next three to six months," he added.

Five Below is one of the best-performing retail stocks in the market this year. The company's shares are up 28 percent year to date compared to the SPDR S&P Retail ETF's negative 6 percent return and the 9 percent return.

In addition to the firm's sales checks with stores, Thomas cited analysis of web search activity trends for fidget spinners, which revealed falling interest for the toy over the past month.

The analyst does not have a current price target for Five Below. He retracted his previous $58 price forecast for the retailer.

"If the stock pulls back to more normalized valuation levels, we could look to become more constructive again, as our enthusiasm for the LT story remains unchanged," he wrote.

Five Below shares fell 4 percent in Wednesday trading after the call.

The retailer did not immediately respond to a request for comment for this story.