It could be that a key to doing well fiscally through financial markets is to selectively shirk media. Its personalities tend to be in pursuit of journalism while trying to project authority or relevance with gainful trading and investment. Their own activities and compensation are relatively risk-free. Perhaps similarly, a handsome actor or attractive actress might solidify television ratings as a weatherperson but if a missed storm ruins your picnic it may not affect the show’s popularity.
The above mostly are not worth a subscription dollar and there is not an easy way to generate that money for use elsewhere. What I am getting around to saying is that, unfortunately, when pursuing opportunity, it can be best to cap losses at time spent. Upon review of Planet Fitness (PLNT) and its stock, for the purpose of profiting through it, there is no obvious risk that should easily be outweighed by reward.
My own methods involve work to actually get to know a business or industry and also specific companies within it. Beyond that: oh how nice it must be to work with a copy editor? Anyhow, at times you can have a genuine edge, in a short term trade, if you know how things function at least as well as important players, meaning those in command of sums of money big enough to move the share price or influential brokers that rate stocks. Evidently a fund manager named Howard Marks claims responsibility for a term that is in part relevant, or maybe just similar, to this occasional advantage: “Second-level thinking.”
Planet Fitness is enjoying several positives. Among them is that the share price has exhibited a consistent upward trajectory. Sometimes when a stock’s chart looks like this the trend continues:
There also is the possibility of some investors selling their holdings after one year, cashing in upon applicability of long-term tax rates on an investment that is up 111.57%. If so, PLNT might be available in the high $40’s rather than its current $51.94 in the near future.
Though I may have a small insight into information presented in the firm’s report of its Second Quarter, media personalities who are actually (highly) paid to summarize what terrific data the company has announced could have it easier. What is my advantage here? Pertaining to the stock, there is not one right now, nothing of a second order that is substantial.
The following can perhaps be helpful at some indeterminate future time though.
How to Categorize Planet Fitness
Planet Fitness is a chain of health clubs. It is a mostly-franchise model. If not within it, it is not far removed from the retail sector because individual consumers are its life blood. Fortunately there is no imminent need to label it within a group.
The firm seems to be the type of enterprise that should have immunity from eCommerce. However, so do terrific companies such as Ross Stores (ROSS), which offers women’s apparel, a significant aspect of the economy, with a share price that can trend across or down before moving up. Underwhelming ones such as The Fresh Market, a grocer, also lie within retail and enjoy separation from internet competition. You do not need to look far to find the struggling storefronts that typify the sector, such as Pier 1 Imports: their customers prefer to shop online.
Retail companies might not always enjoy the market’s higher valuations. Thus it is not clear how to take advantage of PLNT despite how impressive everything seems currently. It is expensive at over 36x the consensus 2019 earnings estimate of $1.42 per share. Without careful attention, I might guess it would have a 25x multiple, but entities such as Gold’s Gym, 24 Hour Fitness, YMCA, etc. are not easy to compare because they are not publicly traded; and the regional Town Sports International (CLUB) just seems woeful.
It also carries substantial debt. The company is exposed to rising interest rates. Borrowing costs may continue going up in the foreseeable future, which could also affect the economy. Planet Fitness has recently refinanced, which should mitigate risk. Still it appears that not all investors will be comfortable with the corporation’s borrowing, or its new target, and shares trade at a high multiple of EBITDA on EV / EBITDA. The company’s blended average interest rate is now 4.47%.
Being a somewhat active, or high involvement, consumer, some research has gone into treadmills. A few familiar parties know that such exercise equipment can be unreliable and break down. Anyone who struggles to motivate him or herself to exercise regularly can image what happens if your machine fails? Health clubs have equipment that really is commercial, rather than temperamental home units that are simply marketed that way.
Treadmills probably are at least as important to fitness centers commercially as free weights—though maybe not yoga or aerobics? There are, of course, other types of machinery, such as exercise bikes. They can be energized sources of group activity at a health club. Different equipment such as ellipticals or StairMasters tend to be used outside of classes and could be like treadmills.
It all seems relevant in light of the burgeoning popularity of fitness apps and devices.
Per commentary on the Planet Fitness conference call, management has “…made a decision to add Matrix and Precor to our existing equipment provider offering, which already includes our long-time partner Life Fitness.” Health club owners are going to be very aware of how reliable varied equipment is, how much maintenance is required, technical specifications, and reasons it could be popular. This would be different from a member who improves cardiovascular condition, or loses some weight, in gaining familiarity with it.
Planet Fitness and Prospective Shareholders
While it appears that competition is a consideration for Planet Fitness, it is probably fragmented. Per the firm, “…due to the increased number of low-cost health and fitness club alternatives, we may face increased competition if we increase our price…” Despite any concern about the budget-friendly model, it raises membership and franchise fees as new stores open and enrollment continues to increase!
If interesting, or maybe to add color, most treadmills are like my Freemotion device in that they top out at 12 mph. Matrix produces acclaimed models that achieve 12.5 mph, the most expensive of which retail at nearly $5,000; Precor has a health club only model that reaches 16 mph. That would mean someone could exhibit notable capability over one mile, particularly in relation to my struggle with 7 minutes. However, it is difficult to imagine this having any effect on gym membership sign-ups because a minuscule portion of persons is going to be preoccupied with a 5-minute mile.
Further, quality home machinery is not inexpensive so it can be fiscally easier to be a member of a low-priced facility.
Recruitment of new franchisees does not seem to be a worry.
Here are other Planet Fitness attributes that might also give a better general idea of how a health club chain is administered:
• 96% of members pay dues by EFT (recorded as an expense under Cost of Revenue, and probably saving franchisees on credit card fees).
• There is seasonality, with member joins typically being highest in January.
• If a franchise is “debranded” then the corporation has the right to prevent it from continuing as a fitness center. Brand is identified as valuable; access to all club locations seems to be important for tiered membership.
• A typical franchise agreement has a ten-year term. (The largest franchisee group accounts for
5.7% of total stores and another large franchisee group accounts for 4.9% of total stores).
• In 2017, over 27% of new members joined online through websites (this could mean fewer sales reps, or automation).
• Franchisees are required to buy their equipment from the corporation every five to seven years. The Equipment Segment itself comprises about 1/3 of corporate revenue and is the company’s lowest-margin piece.
• In the past quarter, replacement equipment sales were 56% of total equipment sales compared to 53% a year ago. Replacement equipment sales are forecast to be approximately 40% of total sales in the next quarter.
Here are some impressive facts pertaining to Planet Fitness:
• System-wide same-store sales increased 10.2% on top of a 9% gain a year ago and adjusted earnings per share grew 55% to $0.34 compared with $0.22 in the prior year.
• Approximately 70% of the increase was driven by member growth with the balance being rate growth.
• Forbes recently ranked Planet Fitness on their 2018 Best Franchises To Buy list, with PF ranking number three in the high-investment category. (It would not surprise me if it is on other lists, and there is time to search about this).
• In 2017, franchisees opened 206 stores, compared to 195 stores in 2016, 206 stores in 2015, and 169 stores in 2014.
• Management expects to start to leverage its franchise segment cost structure and drive margin expansion in the fourth quarter.
• There is international activity, with a first store in Mexico, and existing franchisees are assuming the risk.
• Royalty rates have gone up.
• Franchise segment is reported to have EBITDA margins (revenue / EBITDA) in the mid 80% range.
• With 1,600 stores currently, there is talk of expansion through 4,000.
• This does appear to be a growth stock, and it has a technological driver, as many of them do. Per the conference call: “acceleration has been great between wearables and farm-to-table restaurants and Whole Foods. And you look at wearables and fitness apps, the iPhone was around 10 years ago barely. Now there’s 70,000 fitness apps or something…”
Here are some matters that might be different, for lack of a different way to describe it:
• There is a structure in which 85% of tax savings need be paid to two owners with the firm retaining the remaining 15%.
• There are Class B shares that can be converted into publicly-traded Class A shares, as they were in
the past quarter. It is not clear when or if TSG Partners will continue do so, or unload its stake.
• With the stock setting all time highs, the company has authorized a $500 million share repurchase program, a newer strategy, supported by added debt.
• Recent metal tariffs could affect Equipment Segment profitability, and there appears to have been 1% of compression in the past quarter; however, segment adjusted EBITDA margin is reported as flat with one year ago, at 23.8%.
• Per an analyst on the conference call, average membership per store is at about 7,500, which is
“Elevated” when compared to the industry. The response is that stores are 20,000 square feet and a lot of them have 10,000 members.
• Planet Fitness relies heavily on the fact that memberships continue on a month-to-month basis after the completion of any initial term requirements.
• A portion of the member base does not regularly use stores and may be more likely to cancel. In order to increase membership levels, lower monthly dues or annual fees may be offered.
Final Remarks
To summarize, I enjoy no real advantage with the stock currently. Investors today might not be out ahead of anything. If some aspects of the corporation are misunderstood, for better or worse, it is not easy to identify them.
Planet Fitness seems to be a particularly vibrant retail business. Evidently there is not formidable competition on the horizon. The share price is expensive but can keep going up.
The stock could drop under $50 in the near-term, but even then it would not seem to be any sort of get rich quick scheme. An opportunity to capitalize might require a bigger dip—particularly if you would like to put profit toward a faster than five-minute mile without leaving the home. Of course, news staff might be able to accomplish that via salary, maybe by penning a column in which they say the stock is expensive. A paper’s business model is something different.
The above mostly are not worth a subscription dollar and there is not an easy way to generate that money for use elsewhere. What I am getting around to saying is that, unfortunately, when pursuing opportunity, it can be best to cap losses at time spent. Upon review of Planet Fitness (PLNT) and its stock, for the purpose of profiting through it, there is no obvious risk that should easily be outweighed by reward.
My own methods involve work to actually get to know a business or industry and also specific companies within it. Beyond that: oh how nice it must be to work with a copy editor? Anyhow, at times you can have a genuine edge, in a short term trade, if you know how things function at least as well as important players, meaning those in command of sums of money big enough to move the share price or influential brokers that rate stocks. Evidently a fund manager named Howard Marks claims responsibility for a term that is in part relevant, or maybe just similar, to this occasional advantage: “Second-level thinking.”
Planet Fitness is enjoying several positives. Among them is that the share price has exhibited a consistent upward trajectory. Sometimes when a stock’s chart looks like this the trend continues:
There also is the possibility of some investors selling their holdings after one year, cashing in upon applicability of long-term tax rates on an investment that is up 111.57%. If so, PLNT might be available in the high $40’s rather than its current $51.94 in the near future.
Though I may have a small insight into information presented in the firm’s report of its Second Quarter, media personalities who are actually (highly) paid to summarize what terrific data the company has announced could have it easier. What is my advantage here? Pertaining to the stock, there is not one right now, nothing of a second order that is substantial.
The following can perhaps be helpful at some indeterminate future time though.
How to Categorize Planet Fitness
Planet Fitness is a chain of health clubs. It is a mostly-franchise model. If not within it, it is not far removed from the retail sector because individual consumers are its life blood. Fortunately there is no imminent need to label it within a group.
The firm seems to be the type of enterprise that should have immunity from eCommerce. However, so do terrific companies such as Ross Stores (ROSS), which offers women’s apparel, a significant aspect of the economy, with a share price that can trend across or down before moving up. Underwhelming ones such as The Fresh Market, a grocer, also lie within retail and enjoy separation from internet competition. You do not need to look far to find the struggling storefronts that typify the sector, such as Pier 1 Imports: their customers prefer to shop online.
Retail companies might not always enjoy the market’s higher valuations. Thus it is not clear how to take advantage of PLNT despite how impressive everything seems currently. It is expensive at over 36x the consensus 2019 earnings estimate of $1.42 per share. Without careful attention, I might guess it would have a 25x multiple, but entities such as Gold’s Gym, 24 Hour Fitness, YMCA, etc. are not easy to compare because they are not publicly traded; and the regional Town Sports International (CLUB) just seems woeful.
It also carries substantial debt. The company is exposed to rising interest rates. Borrowing costs may continue going up in the foreseeable future, which could also affect the economy. Planet Fitness has recently refinanced, which should mitigate risk. Still it appears that not all investors will be comfortable with the corporation’s borrowing, or its new target, and shares trade at a high multiple of EBITDA on EV / EBITDA. The company’s blended average interest rate is now 4.47%.
Being a somewhat active, or high involvement, consumer, some research has gone into treadmills. A few familiar parties know that such exercise equipment can be unreliable and break down. Anyone who struggles to motivate him or herself to exercise regularly can image what happens if your machine fails? Health clubs have equipment that really is commercial, rather than temperamental home units that are simply marketed that way.
Treadmills probably are at least as important to fitness centers commercially as free weights—though maybe not yoga or aerobics? There are, of course, other types of machinery, such as exercise bikes. They can be energized sources of group activity at a health club. Different equipment such as ellipticals or StairMasters tend to be used outside of classes and could be like treadmills.
It all seems relevant in light of the burgeoning popularity of fitness apps and devices.
Per commentary on the Planet Fitness conference call, management has “…made a decision to add Matrix and Precor to our existing equipment provider offering, which already includes our long-time partner Life Fitness.” Health club owners are going to be very aware of how reliable varied equipment is, how much maintenance is required, technical specifications, and reasons it could be popular. This would be different from a member who improves cardiovascular condition, or loses some weight, in gaining familiarity with it.
Planet Fitness and Prospective Shareholders
While it appears that competition is a consideration for Planet Fitness, it is probably fragmented. Per the firm, “…due to the increased number of low-cost health and fitness club alternatives, we may face increased competition if we increase our price…” Despite any concern about the budget-friendly model, it raises membership and franchise fees as new stores open and enrollment continues to increase!
If interesting, or maybe to add color, most treadmills are like my Freemotion device in that they top out at 12 mph. Matrix produces acclaimed models that achieve 12.5 mph, the most expensive of which retail at nearly $5,000; Precor has a health club only model that reaches 16 mph. That would mean someone could exhibit notable capability over one mile, particularly in relation to my struggle with 7 minutes. However, it is difficult to imagine this having any effect on gym membership sign-ups because a minuscule portion of persons is going to be preoccupied with a 5-minute mile.
Further, quality home machinery is not inexpensive so it can be fiscally easier to be a member of a low-priced facility.
Recruitment of new franchisees does not seem to be a worry.
Here are other Planet Fitness attributes that might also give a better general idea of how a health club chain is administered:
• 96% of members pay dues by EFT (recorded as an expense under Cost of Revenue, and probably saving franchisees on credit card fees).
• There is seasonality, with member joins typically being highest in January.
• If a franchise is “debranded” then the corporation has the right to prevent it from continuing as a fitness center. Brand is identified as valuable; access to all club locations seems to be important for tiered membership.
• A typical franchise agreement has a ten-year term. (The largest franchisee group accounts for
5.7% of total stores and another large franchisee group accounts for 4.9% of total stores).
• In 2017, over 27% of new members joined online through websites (this could mean fewer sales reps, or automation).
• Franchisees are required to buy their equipment from the corporation every five to seven years. The Equipment Segment itself comprises about 1/3 of corporate revenue and is the company’s lowest-margin piece.
• In the past quarter, replacement equipment sales were 56% of total equipment sales compared to 53% a year ago. Replacement equipment sales are forecast to be approximately 40% of total sales in the next quarter.
Here are some impressive facts pertaining to Planet Fitness:
• System-wide same-store sales increased 10.2% on top of a 9% gain a year ago and adjusted earnings per share grew 55% to $0.34 compared with $0.22 in the prior year.
• Approximately 70% of the increase was driven by member growth with the balance being rate growth.
• Forbes recently ranked Planet Fitness on their 2018 Best Franchises To Buy list, with PF ranking number three in the high-investment category. (It would not surprise me if it is on other lists, and there is time to search about this).
• In 2017, franchisees opened 206 stores, compared to 195 stores in 2016, 206 stores in 2015, and 169 stores in 2014.
• Management expects to start to leverage its franchise segment cost structure and drive margin expansion in the fourth quarter.
• There is international activity, with a first store in Mexico, and existing franchisees are assuming the risk.
• Royalty rates have gone up.
• Franchise segment is reported to have EBITDA margins (revenue / EBITDA) in the mid 80% range.
• With 1,600 stores currently, there is talk of expansion through 4,000.
• This does appear to be a growth stock, and it has a technological driver, as many of them do. Per the conference call: “acceleration has been great between wearables and farm-to-table restaurants and Whole Foods. And you look at wearables and fitness apps, the iPhone was around 10 years ago barely. Now there’s 70,000 fitness apps or something…”
Here are some matters that might be different, for lack of a different way to describe it:
• There is a structure in which 85% of tax savings need be paid to two owners with the firm retaining the remaining 15%.
• There are Class B shares that can be converted into publicly-traded Class A shares, as they were in
the past quarter. It is not clear when or if TSG Partners will continue do so, or unload its stake.
• With the stock setting all time highs, the company has authorized a $500 million share repurchase program, a newer strategy, supported by added debt.
• Recent metal tariffs could affect Equipment Segment profitability, and there appears to have been 1% of compression in the past quarter; however, segment adjusted EBITDA margin is reported as flat with one year ago, at 23.8%.
• Per an analyst on the conference call, average membership per store is at about 7,500, which is
“Elevated” when compared to the industry. The response is that stores are 20,000 square feet and a lot of them have 10,000 members.
• Planet Fitness relies heavily on the fact that memberships continue on a month-to-month basis after the completion of any initial term requirements.
• A portion of the member base does not regularly use stores and may be more likely to cancel. In order to increase membership levels, lower monthly dues or annual fees may be offered.
Final Remarks
To summarize, I enjoy no real advantage with the stock currently. Investors today might not be out ahead of anything. If some aspects of the corporation are misunderstood, for better or worse, it is not easy to identify them.
Planet Fitness seems to be a particularly vibrant retail business. Evidently there is not formidable competition on the horizon. The share price is expensive but can keep going up.
The stock could drop under $50 in the near-term, but even then it would not seem to be any sort of get rich quick scheme. An opportunity to capitalize might require a bigger dip—particularly if you would like to put profit toward a faster than five-minute mile without leaving the home. Of course, news staff might be able to accomplish that via salary, maybe by penning a column in which they say the stock is expensive. A paper’s business model is something different.