(By Michael Vodicka) Growth stocks are notorious for being volatile. These are the stocks that everyone loves when they are blasting higher, hitting a string of new highs and pumping out big gains. That's the upside of a being on the right side of growth. The down side however, isn't very pretty, because that bullish movement often comes with large doses of volatility, with those same high flyers frequently taking it on the chin in a weak market or sudden shift in sentiment. That makes finding a high flyer with any sense of stability all the more challenging.
One stock that has occupied that unique territory over the last few years is Vitamin Shoppe, Inc. (VSI), a specialty retailer of health and vitamin products with a market cap of just $1.5 billion. The company has posted huge gains since going public in late October of 2009, with shares up more than 177% in less than three years. But during that same time, a period marked by extreme market volatility and general uncertainty, the stock's max draw down has been a little over 20%, coming last fall when the market itself pulled back 19% on the U.S.'s budget issues. Other than that, it's been a fairly straight shot higher for the Vitamin Shoppe, fueled by a string of sales and earnings growth on strong same-store sales and new store openings.
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Record Q1 Results
The most recent update on the company's business came in early May with strong Q1 results that once again beat expectations. Sales for the period were a record, up 14% from last year to $248 million. Earnings also looked slid, coming in at 57 cents, 7% ahead of expectations, where the company has an average earnings surprise of 13% over the last four quarters. Comparable-store sales, a key retail metric looked great with a 9.6% increase from last year. E-commerce also continues to be a strong point, with sales up 15.5% as the company continues to build its online presence. Vitamin Shoppe's margin profile continues to look strong, with gross margin climbing 90 basis points from last year to 34.7%.
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Estimates and Valuation
That good quarter left the analyst community wholly impressed, with 14 of 14 covering analysts raising both their 2012 and 2013 earnings projections. As it stands, analysts are looking for full-year 2012 earnings of $1.95, up 9 cents from last month and an 18% growth projection from last year. The next-year estimate is up 12 cents in the same period to $2.31, also projecting 18% growth.
That bullish movement in estimates has helped push the valuation picture down to historic lows. The company's forward PE of 25X is in line with the median over the last 3 years and just a pinch off the low of 22.5X. The high forward PE during that period is 39X, so shares trade at the low end of the historical valuation range in spite of recent gains on the chart.
The company will also continue to benefit from its strong financial profile, exiting the quarter with cash and equivalents of $14 million and no long-term debt. That means the company is funding its growth strategy organically through free cash flow, where the company plans to add a total of 52 stores in 2012 to increase its store count by approximately 10%.
On the chart, VSI has been rocking for most of the last three years after going public in late October of 2009. Since then, shares have risen from just above $17 to a recent all-time high above $54 for an eye-popping 177% gain. The only real pullback we've seen since then came in late summer of last year on the U.S.'s debt ceiling issues, with shares 20% decline mostly in line with the market. But with a nice rebound in hand, shares have sharply outperformed the market, recently hitting a new all-time high. Moving forward, VSI is still riding a bullish trend line higher, so look for support from this key area on any signs of weakness.