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Bear of the Day: Planet Fitness (PLNT)

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Planet Fitness (PLNT - Free Report) is a Zacks Rank #5 (Strong Sell) that is one of the leading franchisors and operators of fitness centers. The stock fell over 70% after all the gyms in the country were closed due to COVID-19. However, with the potential for a reopen of gyms and the economy it bounced significantly, moving up over 170%.

Now that the run higher has stalled at technical resistance, it looks like the stock could fall again.

Overview of Company

The Hampton, New Hampshire company has over 14 million members and 2000 stores in 50 states. PLNT is valued over $5 Billion and has a Forward PE of 52. This high valuation gives the stock a Zacks Style Score of “F” in value.

Gyms Closed

The big issue the company faces is that its business is closed due to COVID-19. This obviously is hurting the company as it can’t collect the revenue from members that are typically going to the gym. The company has frozen all memberships in April, which means the quarter will essentially have no member revenue if they don’t open soon.

While there has been momentum for economies to open, gyms are tricky in a COVID environment. Investors should question whether people will feel comfortable going back to a place where sweat droplets are essentially everywhere.

Technical Resistance

The March lows brought PLNT down to $23.77 from $88.77 the month before. Those lows were a great buy, as the stock has rallied all the way to the mid-$60s in the recent weeks. However, the move has stalled at a 61.8% Fibonacci retracement, which happened to be lined up with the 200-day moving average.  

The stock could find support around the $50 level, but a break of the recent momentum could bring the April lows of $40 into play.

Estimates

The big issue with the compnay is they won’t be making any money early in Q2. While some investors are looking past the upcoming quarter, there will be pressure on the stock the longer the shutdowns continue. Looking at the estimates, we see evidence of this already.

Analyst have cut estimates for all time frames. While the current quarter doesn’t look terrible, next quarter looks disastrous. Over the last 30 days, we have seen a 88% drop in estimates, which fell from $0.32 to $0.04.  For the current year, estimates have fallen to $1.16 from $1.51, a drop of 23%. While there could be a rebound the following year, this won’t help the stock if gyms stay shutdown much longer.

Earnings on May 5th

Investors are not expecting a good quarter, but the outlook is what really matters. The company will likely not be able to give guidance, but might be able to comment on how many gyms will be able to open over the next few months. This will give analysts and investors and how bad things will get. With the stock up so much off it lows, investors should get cautious. 

In Summary

Planet Fitness was a great buy when people panicked in March. However, the stock has almost doubled and its business remains closed. Moreover, people are starting to get comfortable with their Pelotons, which could be an issue for gyms in the future. The move higher in price should be questioned by investors ahead of earnings next week.


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