Forget Facebook, Here's the Real IPO You Should Own

By Michael Vodicka

NEW YORK ( StreetAuthority) -- Facebook's ( FB) recent flop as a publicly traded company has brought a lot of negative attention to initial public offerings. As many novice and experienced investors alike found out, more than a few important pieces need to come together for a successful IPO.

The company (and its underwriters) must create an accurate valuation for the stock based on key metrics like sales and income, issue the correct number of shares and find a price that satisfies demand while maximizing the amount of capital raised.

Clearly, Facebook and the investment banks that were paid big bucks to take it public missed on more than a few of these key criteria, with shares now down more than 20% from their recent high above $45.

But don't think that's standard for IPOs, because it's not.

In fact, there is one recent IPO that has been burning up the charts, up nearly 80%% since going public a little over a year ago in April of 2011. That trend carried over into 2012, with shares up an impressive 25% in the last six months to easily outperform the S&P 500's meager 6% return.

A Hugely Successful IPO

On the chart, you'll see this anti-Facebook IPO posting huge gains, with shares up more than 100% since going public in April 2011 for a whopping outperformance on the S&P 500. Take a look...

The company I'm referring to is GNC ( GNC), a specialty retailer of health and wellness products with a market capitalization of just $3.7 billion.

GNC's stated goal is to transition from specialty retailer to global brand. It already has a leading presence in the retail and online health and wellness space, which it should continue to build on as it executes its strategy to increase its franchise licenses and purse international opportunities in key growth markets like Asia, Western Europe and South America.

Although GNC has seen sharp gains in sales, earnings and its share price in the last year, taking a closer look at the company's business model reveals that it's still on the front end of a long-term growth trend.

GNC operates under three major segments; company-owned stores, franchise stores and manufacturing/wholesale. Most of GNC's revenue comes from its domestic, company-owned retail operations, accounting for 75% of the company's $624 million in first-quarter sales this year.

While that continues to be a strong engine of growth for the company, it pales in comparison to what is happening in its franchise division. This segment produced just 15%, or $102 million, of total revenue during the quarter, but with a much higher operating margin of 34% against the larger retail segment's 20%.

The franchise segment contributed $34 million, or more than 30%, of GNC's $112 million in operating income as well. With just 928 franchise owned stores out of a total global store count of 7,700, GNC expects its franchise operations to grow substantially in the next five years.

As it stands, GNC has 5,900 of its 7,700 stores in the United States. The company is now focused on Asia, Western Europe and South America for expansion, adding 34 new international franchise stores in the first quarter alone. E-commerce will also play a key role, where the company continues to see big gains in online sales, leading all channels during the quarter with a 34% increase in revenue from last year.

GNC is also quite unique in the retail space because of its in-house product development and manufacturing facilities. This provides a number of benefits to the company, enabling it to outsource its products to third-party distributors, create private label manufacturing agreements, respond quickly to changes in consumer preferences and the marketplace as well as reduce expenses.

Risks to Consider: One area where GNC has showed signs of weakness is on the regulatory front, where the company is currently embroiled in a number of lawsuits related to an Food and Drug Administration warning from 2009 about its Hydroxycut products.

Although I'm not too worried about this case, operating in the health and wellness industry places GNC at risk for further lawsuits. It will also face fierce competition in its online business, where fewer barriers to entry have new competitors slashing prices and squeezing margins.

Action to Take: Growth stocks are notorious for trading with nose-bleed valuations. It's rare that a high-growth stock trades at a discount to the market and its peers.

But that's exactly what's happening with GNC. After shares recently pulled back 10% from the all-time high of $41.09, GNC's forward PEG (P/E-to-growth) multiple of 0.92 times is a discount to the Standard & Poor's 500's 1.23 and the industry's multiple of 1.13.

If the crowd catches onto this growth story and begins bidding shares up, then I could see the stock easily gaining 25% or more from here.

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