GNC: Health Products, Healthy Stock
George Liu | May 26, 2012 02:11AM ET
GNC Holdings Inc. (NYSE: VSI ), which has a PE of 29.6. On May 17, Deutsche Bank actually downgraded Vitamin Shoppe to a Hold from Buy; one of the reasons was their belief that Vitamin Shoppe was trading at a premium multiple to GNC, a development which Deutsche Bank believed was unjustified.
The Results
GNC is currently firing on all cylinders in terms of financial performance. Its EPS increased 82% YOY from the first quarter of 2011 to the first quarter of 2012. Moreover, in its last three quarters, GNC has reported an average EPS growth of 84%. Estimate for the current quarter are strong and the consensus estimate is that GNC will report an EPS that constitutes a 33% YOY increase. From a broader perspective, GNC is expected to report an annual EPS increase of 38.41%, which, if fulfilled, would mark the fifth consecutive year of annual EPS growth for GNC. In terms of profitability, GNC has a solid annual ROE of 20.1% and an annual Pre-Tax Margin of 12.2% (a bit on the low side).
A not-so-stellar component of GNC's financials is its 3-Year Sales Growth Rate, which comes in at a paltry 9%. However, sales seem to have picked up as of late: last quarter, GNC reported a 23% increase in sales YOY. Joe Fortunato has stated that sales from new products have exceeded historical rates, while cross selling has also increased: 40% of customers that bought sports nutrition products also bought vitamins last quarter.
The Verdict
Overall, GNC has a lot of positive factors going for it and its stock has significant upside potential. As for the recent DMAA controversy, JPMorgan analysts recently pointed out that DMAA only makes up only a mid-single-digit percentage of GNC sales and called the recent weakness in GNC stock a "buying opportunity." GNC has also experienced 3 consecutive quarters of increasing fund ownership and saw a 26% increase in fund ownership in its first quarter of 2012. I heavily recommend that prospective investors look more into GNC's operations and formulate their own decisions.
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