Shares of GNC Holdings
How it got here
GNC has been on a steady climb higher since coming public just over a year ago, largely by consistently beating earnings estimates. This owes in part to good execution, but market trends have also helped the company. In the quarter that just ended, the company reported earnings of $0.60 per share -- $0.08 above estimates -- and a 23.4% jump in revenues.
A health kick across the country has pushed shares of health-focused companies higher in the past year, and GNC is leading the pack. The Fresh Market
What separates GNC from these other health-focused companies is stronger margins coupled with strong revenue growth.
|
Company |
Operating Margin |
Profit Margin |
Quarterly Revenue Growth |
Forward P/E Ratio |
|---|---|---|---|---|
| GNC | 14.5% | 6.4% | 16.9% | 15.9 |
| Vitamin Shoppe | 9.1% | 5.2% | 19.2% | 21.0 |
| The Fresh Market | 7.5% | 4.6% | 16.9% | 31.4 |
| Whole Foods | 5.7% | 3.6% | 12.9% | 30.5 |
Source: Yahoo! Finance.
Will the trend continue?
The question now is whether the trend of good earnings reports, revenue growth, and strong margins will continue. I don't see why not.
There is a general trend in the U.S. toward a healthier way of life, and supplements and vitamins are a part of that market. This trend will continue to help the company, and the stock is giving investors much bang for their buck. GNC, despite its strong growth and superior margins, is trading at a lower forward P/E ratio than that of the companies I compared above.
What's next?
Right now analysts are expecting $0.49 per share in earnings next quarter, 26% higher than last year. I don't see why the outperformance shouldn't continue, or why earnings shouldn't grow even more than that.
The Motley Fool CAPS community hasn't taken a stance one way or the other, leaving GNC with a middle-of-the-road three-star rating. But 10 out of 11 All-Stars who have rated the stock give it a thumbs-up. I tend to agree with them and think this stock has plenty of room to run higher because of its reasonable valuation and strong growth rate.
GNC is up on strong earnings, but which other companies should you keep an eye on? We've identified five stocks to watch this earnings season, so check out our free report here that highlights what to expect. It's called "5 Stocks Investors Need to Watch This Earnings Season."
