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GNC Holdings, Inc. (GNC) is a $4-billion, mid-cap Pittsburgh-based specialty manufacturer and retailer of health products. The company has performed well since its IPO on March 31, 2011, with an offering price of $16. The stock is now trading at $38. GNC offers vitamins, minerals, herbal supplements, sports nutrition, and diet products. The company has a presence in over 7,700 locations in 56 countries.

The company reported positive results for the second quarter. Retail segment revenue grew 19.3% in Q2 2012, driven by a 12.9% domestic company-owned same store sales increase and a 27.9% growth in gnc.com revenue. The franchise segment grew 25%, while the manufacturing/wholesale segment grew 10.7%. Earnings per share for Q2 was at $0.62, exceeding estimates by 19.2%.

The stock is fairly valued near the low end, with a forward PE ratio of 14.64 and a PEG ratio of 1.08. The GNC stock just sold off 3% after announcing a 10-million share spot secondary priced at $38.75. The stock may continue to pullback a bit on this news since the price fell below the secondary price, providing a better entry point for new investors.

GNC's financials look strong. The company has a profit margin of 9.47% and an operating margin of 16.73%. For the last twelve months, operating cash flow was $188 million and free cash flow was $161.6 million.

The company had nine positive earnings revisions for 2012 and 10 for 2013. It is expected to grow earnings annually at 16.33% for the next five years. This growth is enough to significantly outpace the market. If the earnings estimates are achieved, the current stock price of $38 has the potential to rise to around $80 in five years for a total gain of 111%.

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The company's competitors are other large retailers that sell health products such as Amazon (AMZN), CVS Caremark (CVS), Walgreen (WAG), and Wal-Mart (WMT). These companies all have dedicated space for selling various vitamins, nutritional supplements, etc. Let's take a look at how GNC compares to these competitors.

GNC

CVS

Walgreen

Wal-Mart

Amazon

Forward PE

14.64

11.89

11.94

13.75

95

PEG ratio

1.04

1.03

1.21

1.8

7.77

Profit Margin

9.47%

3.14%

3.54%

3.52%

0.69%

Dividend

1.1%

1.4%

3.1%

2.1%

None

5-year annual expected earnings growth

16.33%

13.01%

11.46%

8.3%

34.44%

We can see from the table above that no company except for Amazon has better expected earnings growth than GNC. However, Amazon is overvalued with lofty PE and PEG ratios, so I would avoid AMZN as an investment. Although CVS, Walgreen, and Wal-Mart are more diverse businesses with many products in many different categories, I think that GNC will outperform them as the company has higher profit margins and expected earnings growth. GNC also offers many unique products that are not found at the drug stores or retailers. This gives the company an edge, as the GNC stores are a specific destination for their nutritional/health products.

Source: GNC Holdings: A Healthy, High Growth Stock Opportunity