Hitting The Gym With Jorge Robles

About: The Gym Group plc (GYYMF), Includes: PLNT
by: Behind The Idea

Gym Group is a UK low-cost gym operator with lots of upside, says Jorge Robles in a Seeking Alpha PRO+ Top Idea.

The company has a strong balance sheet and the opportunity to self-fund growth, creating a potential value investing opportunity.

Mike Taylor spoke with Mr. Robles about scale and financing advantages in fitness, private equity's role in industry competition, and what Brexit means for the British approach to fitness.

By Mike Taylor

As a member of Planet Fitness (NYSE:PLNT), I'm a low-cost gym guy. My best alternative to a gym membership is to go running, because I don't have to pay anyone for the privilege. I've been impressed by Planet Fitness' ability to deliver a reasonably customer experience at a fraction of the cost mid-tier gyms ask.

Little did I know that the low-cost gym business model was an international phenomenon, and that the industry was experiencing a fair level of success in the UK. Still less did I understand how growth capex occasionally masks some very attractive cash flows depending on where a gym company is in its life cycle.

Jorge Robles' recent PRO+ Top Idea on Gym Group opened my eyes to an attractive value opportunity. The small-cap fitness operator has very attractive location-level economics, and its scale creates a modest moat against competition. So I asked Jorge to join me on Behind The Idea to elaborate on his idea and explain the sources of Gym Group's undervaluation, as well as the ins and outs of running a fitness center.

Topics Covered:

  • 2:00 - Gym Group's business model, advantages, investment opportunity.
  • 5:00 - When will return be realized for investors? What's the pivot point?
  • 7:30 - New location logistics
  • 10:15 - What's the growth story? Why is it growing so fast?
  • 13:30 - Where are the competitors?
  • 17:45 - What's the time frame of this opportunity?
  • 24:30 - Private equity owned gym.
  • 26:45 - Earnings as potential catalyst
  • 29:30 - Comparison to Planet Fitness
  • 30:00 - Brexit effects
  • 32:15 - What's a major risk to the thesis?

What's your fitness routine? Do you love going to the gym? Do you buy that over the next several years the market will recognize Gym Group's true earnings potential and rerate the stock? Let us know in a comment.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions 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.

Additional disclosure: Jorge Robles is long GYYMF.