Which gym action is a better buy?

The fitness industry, especially brick and mortar gyms, faced the biggest disruption in its history due to the COVID-19 pandemic. 22% of gyms and fitness studios in the United States have been permanently closed to prevent the spread of the coronavirus, which resulted in a $ 29.2 billion loss in industry revenue. reports from the National Health & Fitness Alliance (NHFA)..

As the pandemic fades and the global economy recovers, the fitness industry could represent a great investment opportunity. According to Verified market researchThe global health and fitness club market is projected to reach $ 136.59 billion, growing at a CAGR of 7.61% between 2021 and 2028. This growth is expected to be fueled by the increased inclination towards health clubs for fitness.

With that in mind, today I’ll be analyzing and comparing two gym titles, Planet Fitness (PLNT) and group holdings for life (LTH). Founded in 1992, Planet Fitness, along with its subsidiaries, owns and franchises a chain of low-cost gyms in the United States and around the world. Since the beginning of the year, Planet Fitness shares have gained about 4.8%. Headquartered in Chanhassen, Minnesota, Life Time owns over 150 high-end fitness centers in a resort-like setting in the United States and Canada. Life Time recently went public, currently trading around 8.7% above its IPO price.

Recent developments

On October 21, Planet Fitness partnered with Huge, a global experience agencyto accelerate their digital strategy by supporting the evolution of the mobile app, website and digital experience within the club. The company believes it should cause greater customer loyalty as well continue to lead its brick-by-click growth strategy and hybrid approach to fitness.

November 11th Life Time Group Holdings announced the opening of a 126,000-square-foot luxury sports resort in Chicago in early 2022. Additionally, the company will open a 39,000-square-foot coworking space, known as Life Time Work, designed around a healthy working life. Subscriptions to Athletic resort and Life Time Work start at $ 229 per month and $ 579 respectively. As a result, the company is expected to see an increase in its recurring revenues.

Financial overview and analyst estimates

Planet Fitness revenue increased 46.4% year-over-year to $ 154.26 million for its fiscal third quarter, ending September 30, 2021. This figure surpassed the Wall Street consensus of $ 19.47 million.

The company’s Adjusted EBITDA grew 94.5% yoy to $ 62.2 million, while its net profit was $ 18.63 million, representing a significant improvement from a loss of $ 3. $ 28 million in the previous year period. As a result, its non-GAAP EPS was $ 0.25, beating analyst consensus of $ 0.06.

The company’s EPS for the fourth quarter (ending December 31, 2021) is expected to rise 42.7% yoy to $ 0.24. Its top line for the next quarter is expected to increase 29.30% yoy to $ 172.98 million.

Life Time Group’s total revenue increased 66% year-over-year to $ 385 million for its fiscal third quarter, which ended September 30, 2021. It is important to note that the company has not yet generated any profits. However, it is moving in the right direction as its third quarter operating loss dropped to $ 17.55 million versus an operating loss of $ 90.8 million in a quarter a year ago. Additionally, its net loss was 106% lower yoy at $ 45.44 million, resulting in a GAAP loss per share of $ 0.36, down 77.8% yoy.

Analysts expect LTH’s EPS to stand at ($ 0.41) for the current quarter. Additionally, analysts expect to see Life Time Group’s fourth quarter revenue at $ 356.56 million.

Evaluation and profitability

In terms of forward price / sales, PLNT is currently trading at 11.39x, which is 405.3% higher than LTH, which is currently trading at 2.81x. However, the Forward EV / EBITDA of LTH of 105.45x is significantly higher than the 37.20x of PLNT.

Let’s take a look at the margin profile as well. PLNT’s final 12-month gross profit margin of 61.28% is 71.22% higher than the industry median of 35.79%. Its gross profit margin also exceeds the respective LTH figure of 35.07%. Furthermore, the company’s free cash flow margin and net profit margin of 30.28% and 9.49% respectively compare favorably with the negative values ​​of LTH.

The bottom line

While both PLNT and LTH should benefit from the growth of the fitness industry, I believe Planet Fitness appears to be a better investment. As discussed earlier, PLNT’s overall financials look more attractive than LTH at the moment.

On Thursday morning, PLNT stock traded at $ 81.36 per share, up $ 2.65 (+ 3.37%). Since the beginning of the year, the PLNT has gained 4.80%, against a 23.12% increase in the benchmark S&P 500 index over the same period.

About the author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. Previously he was a contributing writer on Seeking Alpha, Talks Market and Market Realist. Moreover…

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