Planet Fitness, Inc: A Fundamentally Fit Stock With Great Upside

Planet Fitness Inc (NYSEPLNT) Is a Fit Stock With Great Upside
iStock.com/Sakkawokkie

Planet Fitness Inc vs. Peloton Interactive Inc

The media was recently talking up Peloton Interactive Inc (NASDAQ:PTON) as if the seller of high-end spinning cycles and treadmills was the next big thing.

Many traders (including myself) thought the hype was overblown; the money-losing fitness company’s business model didn’t seem sustainable.

But if you are looking for a fitness-themed investment, I suggest you look into Planet Fitness Inc (NYSE:PLNT).

The company operates a network of more than 1,800 fitness centers, with over 95% of them being franchised. You may recognize the Planet Fitness tagline “Just $10 A Month.”

Advertisement

I like this model since it generates franchise fees and spreads much of the risk away from the company.

The fitness sector is highly competitive and based on small margins driven by membership growth. Planet Fitness Inc appears to be on the right track.

But despite delivering sound growth metrics and being profitable (in contrast, Peloton doesn’t expect profits until 2023), Planet Fitness stock is well off its record high of $81.65 in June, down 18% over the past three months.

On the chart, PLNT stock is hovering just above a support level of $56.90 that was set in February.

Chart courtesy of StockCharts.com

If Planet Fitness stock can hold the support level and continue to deliver growth, the share price could rally back toward resistance at $67.24 and $73.44, prior to retesting its high.

Why I Think PLNT Stock Will Return Big Gains

A look at the revenue picture shows steady growth from Planet Fitness, with four straight years of sequential growth.

Its revenues have more than doubled from 2014 to 2018, marking record growth in 2018.

Fiscal Year Revenues (Millions) Growth
2014 $279.8
2015 $330.5 18.1%
2016 $378.2 14.4%
2017 $429.9 13.7%
2018 $572.9 33.3%

(Source: “Planet Fitness Inc.MarketWatch, last accessed September 26, 2019.)

The revenue growth, while expected to moderate (that generally happens when a company begins to grow), still looks strong.

Planet Fitness is estimated to grow its revenues by 19.3% to $683.3 million in 2019, then by 12.5% to $768.7 million in 2020. (Source: “Planet Fitness, Inc. (PLNT),” Yahoo! Finance, last accessed September 26, 2019.)

The company has also produced five straight years of positive earnings before interest, taxes, depreciation, and amortization (EBITDA); profitability; and free cash flow. This is impressive and indicates a good business model.

Fiscal Year EBITDA (Millions) Growth
2014 $95.4
2015 $112.2 17.6%
2016 $146.2 30.3%
2017 $178.0 23.1%
2018 $220.3 22.4%

(Source: MarketWatch, op. cit.)

Planet Fitness Inc is profitable on both a generally accepted accounting principles (GAAP) and adjusted basis. In 2018, the company’s GAAP diluted earnings per share (EPS) surged to a four-year high.

Fiscal Year GAAP Diluted EPS Growth
2014 $1.01
2015 $0.51 -49.2%
2016 $0.50 -2.1%
2017 $0.42 -16%
2018 $1.00 139%

(Source: MarketWatch, op. cit.)

On an adjusted basis, Planet Fitness is expected to ramp up its EPS to $1.56 this year (versus $1.22 in 2018) and follow that with $1.94 in 2020. (Source: Yahoo! Finance, op. cit.)

PLNT also generates positive free cash flow (FCF), with strong growth in 2016 and 2018 (marking record-high FCF in 2018).

Fiscal Year FCF (Millions) Growth
2014 $62.76
2015 $62.18 -0.9%
2016 $93.44 50.3%
2017 $93.30 -0.2%
2018 $143.54 53.9%

(Source: MarketWatch, op. cit.)

Analyst Take

So, investors who are interested in a fitness play might want to look at Planet Fitness stock.

The bull case for this stock is supported by Planet Fitness Inc’s strong fundamentals and expected growth on the horizon.