VSI, Why is Your P/E So High?

Vitamin Shoppe (VSI) has an estimated Long Term Growth Rate of 20%, yet its P/E is a lofty 29. Yes, profits are growing fast now, but 29 times earnings is still a bit much for a vitamin store. VSI, why is your P/E so high?

One Year Chart

Here’s what VSI has done in the last year — gone from $40 to $58 (+45%). With Estimates showing 13% and 5% growth coming the next two quarters, this stock seems like it should be worth 20 times earnings. It’s not. Why? I went back two years to look at VSI then and VSI now. Then the P/E was 24 and the stock was $25. With the stock selling for more than double that now its obvious something big has occurred.

When I look at the Earnings Table from 2010 Q3, I now see why this stock has done so well. Back then the company was expected to earn a lot less than it made/is expected to make this year. Here’s the comparison:

Qrtr   2010 Q3     2012 Q3
2010   $1.03e        $1.10a
2011   $1.31e        $1.67a
2012    $1.40e       $2.02e

The “something big” that occurred was little earnings beats each quarter, followed by analysts upping annual estimates. In the end the little here-and-there added up to a lot. 2012 is a great example of this — the company is now expected to make $2.02 around 50% more than analysts expected two years ago ($1.40).

Fair Value

I think this stock is worth 25 times earnings. Yes, I’m concerned with the 13% and 5% quarters coming up, and feel a little retailer like Vitamin Shoppe shouldn’t have a big P/E. I’m still skeptical.

Sharek’s Take

I should have owned VSI for clients two years ago, but it didn’t seem this great then. Now we should look for a dip in the stock before getting aboard.  In the long run I feel this stock will eventually sell for 20 times earnings and I don’t want to be the sucker who buys in at 30 times just before the downturn.