GNC has remained reasonably strong and the corrections have been bought. It has bounced back to stay around the highs after the 7% correction. The stock has delivered great returns for the investors over the last 6 months as it has grown 50% from its 52 week low of ~$31 made in January. Some segments of the market where GNC operates are growing at a brisk pace so the revenue growth may continue if the product selection is right. The supplement industry is expected to grow to $15.5 billion in next 4 years. Though the competition is also increasing, the power of GNC will surely help it remain ahead of many. Since the stock has already delivered, it is imperative that the fundamentals remain abreast, and there is no disappointment at the time of earnings. The revenue growth has to be maintained. For this, it has to remain on the lookout for new innovative products which are showing promise. e.g. a new vitamin, Nicotinamide Riboside found in milk, has been commercially launched by Chromadex Corporation (CDXC), a company backed by Dr Frost. GNC may choose some other products which are more in line with its own product strategy to bolster growth. Secondly, the margins have to be improved. The company had shown modest growth in revenues and net income at last earnings, and there was a minor improvement in margins. The fundamentals remain reasonable, and the guidance indicates an EPS growth of more than 23%. The trailing P/E is around 19, and the forward P/E of less than 14 indicates prospects of moderate growth. Margins remain at around 10-11%. Debt is a matter of worry. It has to reduce debt and improve the cash position so that this aspect is taken care. If the fundamentals keep pace, the strength may continue. It will need a strong push to cross recent highs.
