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Insiders Look To Get Healthy On GNC Holdings Inc. (GNC) Stock

 November 19, 2012 03:26 PM


(By Rich Bieglmeier) The political face-palm - also known as the fiscal cliff – may have worried the stock market down 5% since the re-election of President Obama, but it didn't discourage insiders from buying last week. It was a very active week across all sectors and market caps.

GNC Holdings Inc. (GNC) is the insider buying stock that we'll focus on this week. Four of the top executive team members bought 18,300 shares for a total of $602,483.20. CEO Joe Fortunato made the largest purchase with 15,000 shares totaling $494,196. CFO Michael Nuzzo joined in buying $ 55,956.20, EVP, CMO and General Manager Thomas Dowd chipped in $ 32,509.70, and SVP, CLO and Secretary Gerald J. Stubenhofer, Jr. wrote a check for $ 19821.30.

[Related -GNC Holdings Inc. (GNC): Small Changes Enough to Hit Credit Suisse $43 Target]

While other companies saw higher dollar amounts, iStock cannot overlook the top-four GNC officers making the same decision at the same time. It speaks volumes in our view, especially considering the vitamin shop's recent price performance. Shares hit a 52-week high of $42.70 in early July. Since then, the stock has bounced between $35ish and $41ish.

Following good earnings and revised, higher guidance, GNC shares fell and jack-hammered through support. The price fell to the upper $32s once support at $35 gave way, and that's where the quartet of insiders stepped in to buy.

We are unsure what upset Wall Street and sent the stock spinning. Sales and profits were up and grew at a faster rate than inventories and accounts receivables. Additionally, costs as a percentage of revenues dropped, which makes for healthier margins. Add in an upward revision, and the selloff doesn't make sense.

[Related -GNC Holdings Inc (GNC) Q4 Earnings Preview: Usually Beating and Popping]

Interestingly, none of last week's insider buyers have done anything but exercise options or sell GNC stocks in the last two years. In addition to multiple insiders confirming one another's decision, a change of heart is also eye-opening and confirms our "nothing is wrong with the financials" suspicion.

Before investors hop in, the chart shows resistance around $36 for the retailer. Support on the way down is typically a roadblock on the way up.  If the price can get inside the $36-$41 box, then investors might see the stock move back to $41, again.

From a price-to-earnings (P/E) viewpoint, GNC offers investors a reasonable value, in iStock's opinion. The company trades for 12.77 times its 2013 earnings estimate of $2.70. That represents growth of nearly 18% from 2012's consensus of $2.29.  If GNC was to trade at the industry average P/E of 15.22 sometime in the next year, the stock price would hit $42.16 – 21.3% upside. At its five-year average P/E of 20.57, the stock price is much higher at $55.54 – 60% upside.

Overall, iStock feels GNC Holdings Inc. (GNC) is appropriate for growth-at-a-reasonable-price investors.  However, investors could be frustrated as the stock might struggle until it breaks above $36.50ish.
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