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Summer is finally here, and the world is ready to show off that beach bod that they have been working so hard for, but unfortunately, that hard work isn't being reaped by the discount gym chain Planet Fitness (PLNT - Free Report) . After a series of 5 consecutive quarterly misses, sell-side analysts are beginning to lose faith in PLNT, and at its excessively rich valuation multiple, I wouldn't touch the stock.
Analysts are getting increasingly uninspired by this "Judgement Free Zone" gym's narrative and have been dropping their EPS estimates for the next couple of years, pulling this stock down to a Zacks Rank #5 (Strong Sell).
The Business
Planet Fitness had been one of the fastest-growing gyms in the pre-pandemic US economy, but like most gyms, it couldn't retain its peak pre-COVID customer base of 15.5 million, which it had reach by the end of Q1 2020. As a result, in only one year of operation, this budget gym has lost 1.4 million members (having 14.1 million members as of March 31, 2021) and has been struggling to get consumers back in its gyms, despite opening up over 100 new locations (5% increase in gym locations, and 9% decline in memberships). This business may be over-extending itself.
We all know Planet Fitness as the inexpensive purple gym meant for individuals who don't take working out too seriously. One of its unique gimmicks is its "Lunk Alarm" that goes off and draws attention to anyone that is lifting "too hard," aka grunting or dropping weights. But, unfortunately, the pandemic has changed consumers' perspectives on the $10 a month health club membership.
It would appear that this pandemic and the global lockdowns have changed society's perception of living a "healthy lifestyle," and being a member of a gym doesn't seem to be at the top of that list. Being in an enclosed, humid, sweaty gym where everyone is touching everything is not the most attractive service offering for the new normal, especially when your target consumer is a 'casual exerciser' to begin with.
Individuals have found ways to stay healthy and active that don't involve a gym membership, whether it be walking/jogging outdoors, home workouts, or other activities. Whatever it is, it's evident from Planet Fitness's latest quarterly report that these casual exercisers aren't rushing to sign up.
Financials
Planet Fitness has been experiencing significant topline depreciation over the past 5 quarters, which was to be expected from any health club amid the economic lockdowns. Still, the company doesn't seem to be making the material strides back to robust profitability despite its shares hitting fresh all-time highs at the end of February.
Its balance sheet has been experiencing a slightly concerning trend of growing liabilities and a negative shareholders deficit which continues to swell. Planet Fitness has over $580 in debt due by the end of next year, which it will likely have to roll over due to its lack of free cash flows. The company has $504 million in cash & equivalents. However, this is still insufficient to cover its debt maturities for the next year and a half, especially if cash-flows don't regain their pre-pandemic growth trend soon.
The Charts & Valuations
PLNT is experiencing some recent downward momentum, dipping below its 200-day moving average last, which appears to be a new resistance level for the stock, a bearish indicator.
Image Source: TradingView
PLNT shares have been pushed way too far amid this recovery rotation as reopening euphoria has investors and traders buying up every perceived beneficiary as the markets bet on the world going back to normal. As a result, the stock is currently trading at a forward P/E of more than 55x and a double-digit forward price to sales, far above its pre-pandemic levels. These seem like almost indisputably stretched valuation multiples for a business the persistently fails to meet analyst expectations. PLNT has further to fall before they reach an equitable level.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Bear Of The Day: Planet Fitness (PLNT)
Summer is finally here, and the world is ready to show off that beach bod that they have been working so hard for, but unfortunately, that hard work isn't being reaped by the discount gym chain Planet Fitness (PLNT - Free Report) . After a series of 5 consecutive quarterly misses, sell-side analysts are beginning to lose faith in PLNT, and at its excessively rich valuation multiple, I wouldn't touch the stock.
Analysts are getting increasingly uninspired by this "Judgement Free Zone" gym's narrative and have been dropping their EPS estimates for the next couple of years, pulling this stock down to a Zacks Rank #5 (Strong Sell).
The Business
Planet Fitness had been one of the fastest-growing gyms in the pre-pandemic US economy, but like most gyms, it couldn't retain its peak pre-COVID customer base of 15.5 million, which it had reach by the end of Q1 2020. As a result, in only one year of operation, this budget gym has lost 1.4 million members (having 14.1 million members as of March 31, 2021) and has been struggling to get consumers back in its gyms, despite opening up over 100 new locations (5% increase in gym locations, and 9% decline in memberships). This business may be over-extending itself.
We all know Planet Fitness as the inexpensive purple gym meant for individuals who don't take working out too seriously. One of its unique gimmicks is its "Lunk Alarm" that goes off and draws attention to anyone that is lifting "too hard," aka grunting or dropping weights. But, unfortunately, the pandemic has changed consumers' perspectives on the $10 a month health club membership.
It would appear that this pandemic and the global lockdowns have changed society's perception of living a "healthy lifestyle," and being a member of a gym doesn't seem to be at the top of that list. Being in an enclosed, humid, sweaty gym where everyone is touching everything is not the most attractive service offering for the new normal, especially when your target consumer is a 'casual exerciser' to begin with.
Individuals have found ways to stay healthy and active that don't involve a gym membership, whether it be walking/jogging outdoors, home workouts, or other activities. Whatever it is, it's evident from Planet Fitness's latest quarterly report that these casual exercisers aren't rushing to sign up.
Financials
Planet Fitness has been experiencing significant topline depreciation over the past 5 quarters, which was to be expected from any health club amid the economic lockdowns. Still, the company doesn't seem to be making the material strides back to robust profitability despite its shares hitting fresh all-time highs at the end of February.
Its balance sheet has been experiencing a slightly concerning trend of growing liabilities and a negative shareholders deficit which continues to swell. Planet Fitness has over $580 in debt due by the end of next year, which it will likely have to roll over due to its lack of free cash flows. The company has $504 million in cash & equivalents. However, this is still insufficient to cover its debt maturities for the next year and a half, especially if cash-flows don't regain their pre-pandemic growth trend soon.
The Charts & Valuations
PLNT is experiencing some recent downward momentum, dipping below its 200-day moving average last, which appears to be a new resistance level for the stock, a bearish indicator.
PLNT shares have been pushed way too far amid this recovery rotation as reopening euphoria has investors and traders buying up every perceived beneficiary as the markets bet on the world going back to normal. As a result, the stock is currently trading at a forward P/E of more than 55x and a double-digit forward price to sales, far above its pre-pandemic levels. These seem like almost indisputably stretched valuation multiples for a business the persistently fails to meet analyst expectations. PLNT has further to fall before they reach an equitable level.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
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