Investing in a company with the highest market share in its industry, record high profits, and faltering competitors is about as smart as it gets. GNC Holdings , the owner and operator of GNC's, or General Nutrition Centers, is one of the only companies that fits this description and its stock has performed accordingly. It currently sits just 3% below its 52-week high, but it is still making its case for being the cheapest stock in the specialty retail space. 

"Live Well" and Profit 

On July 25, GNC reported second quarter earnings that exceeded analyst expectations: 

  • Earnings per share of $0.73 vs. expectations of $0.70
  • Revenue of $676.30 million vs. expectations of $672.74 million
  • Same-store sales rose 6.8%
  • Increased 2013 full-year outlook by $0.08 to $2.83-$2.88 per share
Earnings per share grew 17.7% and revenue rose 9.2% year-over-year with strength being shown in all three business segments; retail revenue rose 9.6%, franchise revenue rose by 6.8%, and manufacturing revenue rose by 11.1%. The strong performance was due in large to same-store sales growth, but also from the addition of 151 net new stores since the second quarter of 2012; this brings the grand total to 8,349 stores in 55 countries. The company has consistently grown in all segments, meaning there are no weaknesses to note at this point, resulting in high investor confidence.

Healthy Growth
Although the company has experienced incredible growth over the last few years, it is not expected to slow down anytime soon. Here are the current consensus analyst estimates:

  • 2013: 23.2% growth
  • 2014: 19.9% growth
  • 2015: 14.5% growth

According to YCharts, GNC has an average price-to-earnings multiple of 22.15 since going public in April of 2011. If it continued to trade at this average multiple, shares could exceed $87 in 2015; this would represent an incredible 62% gain from today's price. Whether this is optimistic or not, the upside potential is clear, and investors are taking notice.

The Game-Changer
New products and partnerships are great for business, but expansion into new markets is where high growth is created for a company like this one. On July 23, GNC opened its first retail store in China and announced plans to add another 25 within 12 months. This was not something that just happened overnight, it has been a long and strategically planned move.

In 2011, GNC opened its first office and distribution center in Shanghai. The company added 60 store-within-a-store locations inside grocery stores, convenience stores, and health clubs to go with its large online presence; this allowed the company to gain exposure to the world's largest consumer market. After the 2 years of success GNC experienced in these ventures, management knew it was time to open its first retail location and that is exactly what they did. I think GNC could easily add over 1,000 locations in China to continue running profits to all-time highs. I would keep an eye on the store-openings in future reports to ensure the company is keeping the expansion hose on full blast. 

Piggy-Backing Success
As mentioned before, GNC has a large online presence. Its products are ranked No. 1 in the supplement category on Amazon.com . These e-commerce websites earn commissions on every sale, but each have an additional way in which they benefit.

Amazon makes additional revenue because GNC is signed up as a professional account, paying a monthly fee plus commissions, and being enrolled in "Fulfillment by Amazon." In this service, GNC stores its products in Amazon's warehouses and Amazon ships all the orders out once they are placed online; GNC just pays storage fees and the fees associated with each sale. 

eBay earns additional revenue when orders are placed on its website because the majority of its users pay for these items using their PayPal accounts. PayPal is owned by eBay, so not only will the company earn money on commissions from the sale, but again on PayPal fees paid by the merchant. It's up to the merchant whether to accept PayPal or not, but a good portion of users will avoid buying from sellers who do not accept it. Having popular brands opening stores on its site is a win-win situation for eBay.

Another large beneficiary from GNC's success is Rite Aid . Rite Aid currently operates over 4,700 locations in 31 states and is one of the three largest drug store chains on the East Coast. The two companies have formed a partnership and added 2,189 store-within-a-store locations as of June 30. In this arrangement, Rite Aid has a section of its store dedicated entirely to GNC's products and pays a setup fee in order to earn a higher margin. Rite Aid's management stated, "because of the popularity of GNC products, the stores-within-a-store have consistently outperformed the overall vitamin category." I believe this fact will cause Rite Aid to add GNC store-within-a-store locations in the remaining 2,500+ stores that do not have one. 

Struggling Competitor
As GNC has enjoyed success over the last several quarters, Vitamin Shoppe  has felt the pain. It has fallen about 26% over the last 52-weeks due to several issues. The decline began when the company missed on both the top and bottom lines in the fourth quarter of 2012 when it reported in February and again after missing revenue estimates for the first quarter of 2013 when it reported in May. Same-store sales have continued to disappoint, prompting an analyst downgrade on September 13, which sent shares to fresh 52-week lows. The stock has since rebounded about 3.75%, but I would steer clear of this one and go with a proven performer in GNC.

The Foolish Bottom Line
GNC is a nutritional industry titan that is growing at an accelerated rate, thanks to increasing same-store sales and worldwide expansion. It is a great value play at current levels and should be bought on any and all pullbacks. Take a look and see if GNC has a place in your portfolio. 

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The article Your One Stop Shop for Healthy Profits originally appeared on Fool.com.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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