Mad Money

Cramer: Pros drew wrong conclusion from earnings

Use GNC weakness to buy Vitamin Shoppe: Cramer

(Click for video linked to a searchable transcript of this Mad Money segment)

Pros don't always get it right. In fact, Jim Cramer thinks the conclusion they've drawn from these earnings is flat wrong.

He says that pros have taken weakness in GNC earnings as a referendum on the entire vitamin industry and have therefore sold rival Vitamin Shoppe assuming the company is facing the same headwinds.

"I think that conclusion is mistaken," Cramer said.

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Part of the confusion stems from the timing of earnings. GNC reported on May 6th while rival Vitamin Shoppe reported on May 7th. "GNC is the much larger player and because it reported first, results were given much more weight," Cramer said

And make no mistake, Cramer agrees that GNC results were weighty. "They are clearly struggling to execute and they've posted two breathtakingly bad quarters in a row."

But Cramer also says dig down into Vitamin Shoppe earnings and you'll find that, "Their results were terrific, they crushed Wall Street's expectations. They showed that Vitamin Shoppe is cruising along and delivering on all fronts in a stable and consistent manner."

Yet, preoccupied with troubles at GNC, Wall Street missed that.

Parsing through the specifics, Cramer said Vitamin Shoppe had much stronger same store sales in the latest quarter, its revenues grew by 10.3 percent and Vitamin Shoppe has tweaked its format so that new stores have about 20 percent less square footage but still offer the same products.

Also Cramer believes Vitamin Shoppe's recent acquisition of Nutri-Force Nutrition for $85 million is a sign that Vitamin Shoppe is moving toward vertical integration

All told, Cramer says there's every reason to believe the company is firing on all cylinders and, therefore, he doesn't think the stock's recent decline is warranted.

"In fact, at 15 times next year's earnings estimates, with a long-term growth rate of nearly 14 percent, I think Vitamin Shoppe is a buy," Cramer said.

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Don't get confused by the weakness at GNC. Although Cramer concedes there's something wrong at that company, he thinks the issues are specific to GNC. "At rival Vitamin Shoppe business is booming," he said.

Call Cramer: 1-800-743-CNBC

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