Due to the temporary closure of gyms and other public spaces enacted to slow the spread of COVID-19; planet fitness (NYSE:PLNT) It suffered a huge economic blow during the early stages of the pandemic. However, the stock eventually recovered and hit a new high in November 2021.
However, things have been difficult for shareholders of this profitable and scalable business ever since. As of April 16th, this fitness growth stocks It is down 37% from its all-time high. So, is Planet Fitness a once-in-a-generation investment opportunity?
look at the basics
Planet Fitness had a strong 2023. Revenue he increased by 14.4% to his $1.1 billion, a new record for the company. This was driven by an 8.7% increase in same-store sales and 165 net new store openings. Planet Fitness also added 1.7 million new members, bringing its total number of customers to 18.7 million at year-end.
All of these important indicators show that the business has rebounded admirably from the depths of the coronavirus pandemic. Consumer behavior is normalizing, which is a clear benefit.the Management remains optimistic about the long term. They believe the company could one day open 5,000 of his gyms in the United States, which would be nearly double the current store footprint. And if Planet Fitness can get even slightly closer to that goal, its sales and profits should be significantly higher than they are now.
Understand your competitive advantage
It's very difficult to achieve lasting success in the fitness industry, which has a long history of short-lived fads. It doesn't help that these companies have to expect their customers to stick with their training habits, or at least have to pay a fee that allows them to do so.
Planet Fitness has figured out how to build a sustainable business model. Part of its success is due to operating a franchise system. Less than 10% of the company's 2,575 locations are actually owned by Planet Fitness. The rest is owned by private investors, who put in their own capital and pay regular fees to the business.
“The best business is loyalty to the growth of others,” famous investor Warren Buffett once said. Planet Fitness fits that description. We are expanding on the back of capital investment by franchisees. This helps fuel continued generation of free cash flow, of which Planet Fitness reported about $200 million last year.
A company's size and brand are also important competitive advantages. Planet Fitness has a nationwide presence, which makes it easy to acquire new members. They have the financial power to acquire advantageous locations to open new gyms. You can also spend more on marketing while keeping your lowest-priced membership tier at just $10 per month. It's hard to beat it.
Candidates worth investing in
Planet Fitness has the characteristics that make it a quality business, especially in the fitness industry. Customers, revenue, and profits are increasing, and we see a long road to future growth.
To buy shares, investors are asked to pay a fee from the market. Expected PER 24.4's. This represents a premium to 21.3x. S&P500. However, some investors may think this valuation is justified.
To be clear, I think Planet Fitness is a worthy investment candidate for long-term investors today. However, I don't think this is a once-in-a-generation opportunity. If that forward P/E ratio drops significantly, to say 15, then it might fit into that rare category. At that point, it looks like an easy stock to buy.
Nevertheless, investors should still take a closer look at the stocks in their portfolio.
Should you invest $1,000 in Planet Fitness right now?
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Neil Patel has no position in any stocks mentioned. The Motley Fool has a position in and recommends Planet Fitness. The Motley Fool has a disclosure policy.
Is this growth stock, down 37% from all-time highs, a once-in-a-generation investment opportunity? Originally published by The Motley Fool
