Fitness Stocks

Why This Fitness Stock Is Our Next Big Investment

consumer discretionary investing strategies Aug 27, 2021

Today we're covering a type of stock that we've never covered here at Moby before. And that stock is a franchisor and operator of fitness centers. The company reports that it has over 2,000 active franchises, making it one of the largest fitness club franchises by number of members and locations in the world.

While we've never been ones to invest in these types of businesses, a recent tip from a Moby community member had us take a further look. What we uncovered was extremely shocking and we're truly happy to invest into this new type of business.

Let's break down who the company is and what has us so excited!

We think there is a ton of upside coming for the shareholders of this company.

 

The Company: Planet Fitness (Ticker: PLNT)

At first glance you may be thinking, "Really? Planet Fitness? Is that a good idea?" We'd be lying if we said that it didn't originally cross our minds too. But as we mentioned above, the company actually has a lot of upside potential. Let's dive into the specifics.

 

Planet Fitness Risks:

Off the bat, we'd like to acknowledge the elephant in the room and that is COVID. Yes, there are real fears that gyms get shut back down and Planet Fitness takes a hit but we're comfortable with the risks given the current data.

That data shows that people rushed back to gyms the second they were allowed to. And Planet Fitness specifically, saw that 90% of their members came back and are close to closing in on their membership levels pre-Covid. This continued rush back to gyms should not end anytime soon as schools & offices reopen in the fall. This reopening will lead to more usage for this company (as is expected this time of year) and we project them to have a real chance to surge past 2019 membership levels.

What A Typical Planet Fitness Gym Looks Like

Additionally, Planet Fitness is a value fitness club. They cater towards the middle class and don't really come in competition with the at home fitness providers such as Peloton, Mirror, etc.

Because of their niche, their following, and where we are in the cycle, we're extremely comfortable taking the COVID risks associated with this company. We also believe, should another lockdown occur, that the market is forward looking enough to not ding their stock price for a prolonged period of time.

 

Planet Fitness Growth Story:

So now that we've addressed the potential headwinds of COVID & a trend change in the way people work out, let's discuss their growth potential.

The first potential we see in the company is due to their stock price.

  • The stock has underperformed the benchmark in 2021 and is below the high's back in early of 2020. This speaks to how early the opportunity is, as the stock is yet to rally and we're expecting to hit the growth trajectory on the upslope.

The next opportunity for growth is specific to the company itself.

  • Planet Fitness are the kings of the low price and high volume model. Within this model, we're projecting a strong financial recovery. This is largely due to memberships rebounding, low customer acquisition costs, and no exposure to any commodity inflation.

We see this happening because of same store sales and their market penetration. As we've mentioned in several other posts, same store sales (SSS) are a measure of efficiency. If SSS is higher, this often means that their margins are higher. And over the last 8 months, PLNT has been able to sustain SSS. Therefore we believe they'll be able to expand it soon!

As for market penetration, we see some secular tailwinds here at play. This is because the mass return back to gyms is just about to happen and gym usage country wide is still quite low (~25%) leaving the revenue opportunity to be absolutely massive! With people interested in living a healthier lifestyle post COVID, as well as enjoying a sense of community, we see PLNT delivering on a lot of these American core values.

 

Planet Fitness Summary:

Our investment in Planet Fitness is quite diversified relative to our usual targets. We often look for undervalued tech companies or other growth stories, but Planet Fitness finds a unique niche within our usual analysis. We believe global re-opening should play nicely into their revenue growth story. We also believe the market is under-discounting how likely this is to occur. Therefore we're choosing to invest now, before it becomes more apparent to the masses. We like this stock as having nice upside, while also being a strong diversifier in our portfolio!

 


 

Price Target: $92 (20% upside)

Target Date: Q2 2022

Rating: Overweight

Ticker: PLNT

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