As a value investor, the ultimate goal is to pay less than something is worth. To do that, you want to pay a cheap price for an asset. So anytime I see a company with a stock price that is significantly lower than it once was, I always take a closer look.
GNC Holdings (GNC) , a retailer of nutritional supplements fits the bill. A year ago shares traded for nearly $36. Today, the shares trade for $9 for a market cap of about $620 million. Debt is an uncomfortable $1.5 billion, yet the business has been a solid generator of cash flow.
At the current share price, shares fetch less than 4x trailing earnings and 5x forward earnings. Of course, the reason for the stock price carnage is the decline in the business and the expectation that forward earnings are going to decline.
GNC's main pure-play competitor is Vitamin Shoppe (VSI) which currently has a market cap of $521 million and debt of approximately $100 million. In contrast to GNC, Vitamin Shoppe trades for 13x trailing earnings but less than 10x forward earnings. So Wall Street is expecting earnings growth for VSI.
Of course, the nutritional supplement business has other competitors too, namely natural food stores like Whole Foods and, of course, Amazon (AMZN) . Still, specialist like GNC carry a deeper array of products. I still need to understand the habits of supplement consumer a little better to get a handle on the business. It would appear that many users of nutritional supplements do so regularly, thus creating loyalty. Therefore, the question becomes whether they continue to visit the brick-and-mortar stores or if they shift to other online sources. From what I can see, online pricing of supplements is not necessarily a lower price than the retail price.
In any event, with markets at all-time highs, attractive opportunities are few and far between. So when a well-known specialty brand sees its share price pounded and trades at these prices, it's well worth to look closely under the hood.
