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Fastest-growing rank: 93
Get quote: PTRY
3-year average annual return: 28%

After five years of stupendous expansion, Pantry, operator of more than 1,600 convenience stores and gas stations across 11 Southeastern states, has struggled this year. While net income jumped eightfold from fiscal 2003 through 2006, the Sanford, N.C., company, best known for its Kangaroo Express chain, expects to earn about $40 million in 2007, down from $89 million last year.

Margins on gasoline sales, which account for almost two-thirds of the company's revenue, got squeezed this year, the result of a lag between the time wholesale prices rise and when the higher prices get passed along to consumers at the pumps.

Though revenues have continued to climb, those weakening margins, also hurt by an uptick in operating costs, led the company to repeatedly lower its earnings guidance. That violated Wall Street's cardinal rule - keep growth smooth and steady - and shook some investors' trust. The stock has been punished accordingly; shares have fallen more than 40% from their 52-week high.

Yet Pantry still has plenty of promise. In fact, analysts say the ingredients are there for an extremely rewarding rebound, and this looks like a great time to buy into a well-run business with alluring prospects. "Pantry, with its solid acquisition strategy and strong in-store performance, is poised for tremendous growth over the long run," Morningstar analyst Ann Gilpin wrote recently, "and we think this cyclical downturn is providing an attractive buying opportunity."

The rebound should be driven by a few factors. First, gasoline margins should climb back to historical norms, Gilpin and others say, as wholesale fuel prices stabilize. And earnings should pick up as the chain continues to acquire new stores - it added 152 in fiscal 2007 alone - and improve its operations. Pantry has also been building up higher-margin businesses, such as car washes and quick-serve restaurants, and integrating them into its locations.

"There's a lot of upside to the stock," notes Gilpin, who values the shares at $63. "The firm is spring-loaded for growth."

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