With GNC having all five parts of its plan covered, what is stopping the company? To be honest, the company faces few serious risks at the moment. At the top of the list are a few concerns that could throw earnings off track:
–An overall decline in consumer spending would decrease revenue.
–Many of GNC’s products contain controversial ingredients that people do not yet know the long-term effects of.
–Increased costs associated with government regulations as health and wellness becomes a more common topic of political debate.
–The effects (which could be either positive or negative) of the publicity that GNC’s products receive.
Also, GNC Holdings Inc (NYSE:GNC) has some competition in its industry. The most effective amongst these competitors are Amazon.com, Inc. (NASDAQ:AMZN), CVS Caremark Corporation (NYSE:CVS), and Walgreen Company (NYSE:WAG). Of the four companies, GNC is undoubtedly the smallest, with a market cap of $4.5 billion. The next smallest company is Walgreen, which has a market cap of $42.9 billion.
So clearly, GNC doesn’t find its competitive advantage by overpowering its rivals. Instead, GNC stands out by carving out a niche for itself and operating effectively within its boundaries. GNC is, without doubt, a leader in the health and wellness industry. One of the most impressive aspects of GNC’s business is its efficiency. Let’s compare GNC and its competitors in a few areas:
|Company||Profit Margin||Operating Margin||Return on Assets||Return on Equity|
Clearly, GNC Holdings Inc (NYSE:GNC) has the upper hand over its competitors when it comes to efficiency. As a result, GNC has been able to operate within its niche in an extremely successful manner.
Do not misunderstand this idea, though. Overall, each of the competitors I have mentioned are powerful, growing, and successful companies. Let’s take a deeper look at each one of them to understand this:
–Amazon.com: Never has a company ever executed so perfectly the idea that one can go on a computer, hit a few buttons, and have a package of what they want sitting at their door the next day. This is why Amazon reported annual revenue of nearly $64.0 billion. But the important thing here is that this revenue is not coming entirely from dietary supplements. It is coming from books, televisions, beds, phone accessories, clothes, and just about everything else you could possibly think of. GNC, on the other hand, has operated only in the health and wellness field. GNC seems to be the much more effective company, as Amazon only brought in $2.7 billion EBITDA, which is reflected in its poor margins addressed above.
–CVS Caremark: CVS is much more involved in the sale of health products than Amazon, but still not quite as focused in that area as GNC is. Also, CVS specializes more in drug and medicine types of products, while GNC focuses on dietary supplements. So again, we see that GNC has the upper hand when it comes to the niche that both companies are involved in, despite the fact that CVS is much larger, with revenue of more than $120 billion.
–Walgreen: Finally, there’s Walgreen. This is a very similar company to CVS, and what I brought up previously about product specialization applies here as well. Walgreen, a company with a market cap of more than $40 billion, may be much larger, but it is also much less efficient than GNC. The profitability of both companies can be seen in the chart above.
The bottom line
GNC Holdings Inc (NYSE:GNC) has been quite profitable and efficient in its operations, which has guided the company to a leading position in the health and wellness industry. As the company continues to grow and expand with the guidance provided by its five-part plan, investors can jump aboard and enjoy the journey to success.
Bryan Wagman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.
The article GNC’s Stock Is Heading Up originally appeared on Fool.com.
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