Hot on the UAA discussion let's look at the gym space. Planet Fitness had a rocky path after it's IPO in mid 2015, but recently it's been all uphill. Can it keep climbing?
Key Stats
| Ticker | PLNT |
|---|---|
| Sector | Gyms, Fitness and Spa Centers |
| Latest price | $26.99 |
| Value | $2,655M |
| Daily vol | $31M |
| Date | 29 September 2017 |
| Financials | SEC Edgar |
| Website | planetfitness.com |
1. To Franchise & More
Planet Fitness is a franchisor and operator of fitness centers in the United States. The Company operates through three segments:
- Franchised gyms (31% of sales)
- Their own corporate-owned gyms (28%)
- selling Equipment to franchisees (41%)
As of December 31, 2016, it had approximately 8.9 million gym members across 1,313 stores in 48 states, the District of Columbia, Puerto Rico, Canada and the Dominican Republic. Of its 1,313 stores, 1,255 were franchised and 58 are corporate-owned.
I don't live near one of their gyms but I like the ethos:
Our mission is to enhance people’s lives by providing a high-quality fitness experience in a welcoming, non-intimidating environment, which we call the Judgement Free Zone, where anyone—and we mean anyone—can feel they belong. We offer this differentiated fitness experience at only $10 per month for our standard membership.
On the latest call the CEO explained their success
Unlike other gym models, we're not about the fit getting fitter. We cater to the 80% of the population that doesn't have a gym membership, casual exerciser or first-time gym user that has never worked out before.
The numbers
It's growth has been amazing and the forecasts indicate continued strength!
| Metric | 2012A | 2013A | 2014A | 2015A | 2016A | 2017E | 2018E |
|---|---|---|---|---|---|---|---|
| Revenue | $160m | $211m | $280m | $331m | $378m | $415m | $456m |
| EPS | NA | NA | NA | $0.11 | $0.50 | $0.78 | $0.94 |
In fact, much more impressive is that they have had 40 quarters of same-store sales growth, and in 2016 it was 9%. What's that mean? i.e. the growth isn't just from adding new gyms, but from increasing sales in the existing gyms.
Plus there seems to be plenty of growth left to the market, as there are 55m people in the US with a gym membership (out of a total of 255m people aged over 14), and there are 36,000 gyms.
Bankers in the background
But as you'd expect for a brick-and-mortar business like this there is debt. In fact, PLNT has $627M of net debt. That is 3.8x it's latest operating profit. Which is a little more than I typically like. (aside: unless it's a utility with captive customers, I worry when a stock has more than 3x leverage).
Given Planet Fitness is in growth mode and it has all that debt, it's not surprising that it is not forecast to pay a dividend this year! Though... it's odd to see that they paid a substantial cash dividend in late 2016... loading the business up with debt.
In fact there Annual Report shows that Planet Fitness isn't a simple structure, there are venture capitalists in the background.
As of December 31, 2016, the Company held 100% of the voting interest, and approximately 62.3% of the economic interest in Pla-Fit Holdings and the Continuing LLC Owners held the remaining 37.7% economic interest in Pla-Fit Holdings. As future exchanges of Holdings Units occur, the economic interest in Pla-Fit Holdings held by Planet Fitness, Inc. will increase.
So the old VC team and management still own a substantial part of the business. And they do sell downs of their stake periodically. In fact after the May 2017 selldown the old guard now has just 15%. Here's the complex structure.
This sort of thing annoys me... irrational perhaps.
2. How do they compare?
I've struggled to find any peers in the gym space... so have a rag bag of stocks to measure them against, from the Leisure space. Regardless, they look good.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Planet Fitness Inc | $402M | 41% | N/A |
| Tivity Health Inc | $530M | 23% | 30% |
| ClubCorp Holdings Inc | $1,102 | 7% | -0% |
| Vail Resorts, Inc. | $1,878M | 31% | 16% |
| Six Flags Entertainment Corp | $1,319M | 33% | N/A |
On earnings, it's in line with some of the peers even though it's got better growth prospects.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| PLNT.K | $2,655M | 35x | 18% | 0% | 6% |
| TVTY.O | $1,627M | 27x | 14% | 0% | 3% |
| MYCC.K | $1,126M | 60x | N/A | 3% | N/A |
| MTN | $8,868M | 37x | N/A | 2% | 6% |
| SIX | $5,210M | 33x | 8% | 4% | 9% |
Though it's a little concerning that the current valuation of 35x is at the high end the PE range the last 2 years: 22 to 37 times.
3. Is Wall Street in love?
Unsurprisingly the professionals on Wall Street have a Buy recommendation. But their target price is $27.11 which is where the stock is :( Their bullishness has been rewarded... but are they going to up their target soon?
Clearly the company's done well, managing their expectations since IPO, growing nicely and delivering the earnings they promise, but does than justify an even higher PE ratio?
4. Motivating myself!
Just like going to the gym, it's sometimes hard to motivate yourself, even for a good thing! The ramp over the last 6 months has all been driven by multiple expansion. Even looking to 2018, the stock is on 29x. And that's assuming a 20% jump in earnings.
I like the business ethos and growth. But I feel like I've missed the easy money. Plus I don't like the A / B share structure, with them not owning 100% of the underlying business.
If the stock has a wobble and when the weird corporate structure is gone, I'll have another look.
But for now, I'm not going to get exercised by PLNT.
View the archive of Stock a Day posts at r/stockaday.
Disclosure:
I have no position in the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author: /u/shane_stockflare Shane Leonard, CFA
Submitted September 29, 2017 at 12:13PM by shane_stockflare http://ift.tt/2xQ4Vwa
