Planet Fitness (NYSE:PLNT) is a stock we took profits in last year, and have been just trading it here and there ever since. After the company reported earnings last week, the stock has pulled back following calls that the name is grossly overvalued. As such, we want to share with you our thoughts for an investment here once again. We think it can both be traded short term and invested in long term. Let us discuss the play we think you can make and the story here longer term.
Simply put, we think Planet Fitness is a cash cow. It offers very low membership rates. This often prevents cancellations, as even when cash flow is tight, these types of low dollar memberships are often the last to go. Sure, churn may be high within the first few months but after a year churn drops to ~2% (see link in opening paragraph regarding overvalued). Planet Fitness has an aggressive and wildly successful advertising campaign. It is becoming a household name thanks to its marketing team.
While Planet Fitness doesn't have global reach, its model is more of a social hangout spot with fitness undertones, rather than a serious gym, and that is why it works. It is cheap and it is for socialization, while having 'fun' working out. Sure, Planet Fitness runs fitness centers, but the business is a bit more involved than that. It needs to grow subscribers, but the money isn't made from dues. You see it also sells high-margin products (water, merchandise, etc.). While competition is severely stiff in this space, Planet Fitness continues to grow like wildfire. In fact, this is still one of the fastest-growing franchises in the nation. Eventual saturation could be an issue, but there is a lot of room for growth still in the United
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