(Fortune) -- Now that a few MP3s and a MySpace page can turn an aspiring rock-n'-roller into a pop icon, enthusiasm for amateur music has soared. And as the number of would-be rock stars has increased, the market for musical equipment has taken off. It's currently a $16 billion industry, and expanding 5% to 7% annually. At the center of that growth is Guitar Center, the U.S.'s largest retailer of rock-n'-roll instruments and recording tools.

With dominant market share (most of its competitors are mom-and-pop stores and small regional chains) combined with plenty of room to grow, Guitar Center (Charts) is an investment that rocks. And with Guitar Center trading at about $43, near its 52-week low, and at a multiple of 15, below its historical average of 19, the stock is a bargain.

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Guitar Center is a $1.8 billion company with a national fleet of about 170 guitar shops that cater to both ambitious beginners and experienced professionals. It also owns 129 stores that sell band and orchestral instruments, has a substantial catalog business and runs a website that offers the broadest inventory in the industry.

The company plans to expand to at least 420 Guitar Center stores over the next few years, and new international retail locations in Canada and the U.K. are planned for 2007. Guitar Center has a strong growth record - averaging 17.5% in revenue and 33% in earnings-per-share annually over the last five years. And the consensus among analysts is that Guitar Center is on track to maintain its fast growth over the next few years.

Its new website, GuitarCenter.com, which launched at the end of June, makes now a particularly good time to buy the stock. Previously, the company's only online sales were through MusiciansFriend.com, a no-frills low-cost site for experienced musicians. GuitarCenter.com caters to enthusiasts with advice columns, community features, and extensive customer support for beginners.

The new site promises to generate significant new sales and higher margins, but worries about the debt incurred building the site and the distribution systems needed to support online sales have been depressing the stock price. Big investors also didn't like that the company's sales margins dropped in the first quarter as MusiciansFriend.com offered free shipping for the first time.

"The current stock valuation appears to be attributing very little value to the [web business]," writes Sharon Zackfia, an analyst at William Blair.

However, the worries about the addition of GuitarCenter.com to the company's properties definitely seem overwrought. Already in the first quarter of 2006, sales at MusiciansFriend.com grew 12.7%, higher than expected. This suggests that Guitar Center's managers (most of whom have been working at the company since starting there as long-haired salespeople in the 1970s) know what it's doing in the web business.

The new GuitarCenter.com will also add value in ways that its current web business doesn't. The company plans to use its heavy investment in IT and inventory control not only to trim costs, but to move to a "click-and-mortar" model in 2007 or 2008. The hope is to bring more beginners from the web into the stores, where they'll get customer service from experts (all Guitar Center store salespeople are musicians) and hopefully purchase higher-margin offerings like lessons and more advanced equipment.

Guitar Center also has been growing by acquisition, last year buying Music & Arts, a storefront retailer of student band instruments, and merged it with its existing band and orchestral subsidiary. Guitar Center closed the part of that business that sells to institutions, helping lead Music & Arts to a second-straight quarter of profit in the first quarter of this year. Earnings in the unit are set to improve even more as those stores begin selling Guitar Center's branded products, which offer much higher margins.

So when evaluating Guitar Center, don't be frightened by warnings about high debt and slower-than-expected increases in margins. Its investments in growing and improving the business will pay off handily over the next few years. Even if bands born on the Internet don't play your favorite kind of music, the profits you can make from their enthusiasm may make you want to dance anyway.

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