Planet: A Fitness Favorite

09/15/2015 7:00 am EST

Focus: STOCKS

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

The market has stabilized somewhat, holding above its lows of August 24, but sellers are showing up after every bounce. In the short-term, we expect more gyrations based on the news of the day, suggests Mike Cintolo, editor of Cabot Top Ten Trader.

Investors should stick with a defensive stance, using this time to build a watch list and buy just small positions here or there.

Planet Fitness (PLNT) is a newly public company—it had its IPO on August 6—with a great brand name and an interesting growth story.

Planet Fitness is known for its relatively easy going fitness centers, mainly targeted to the casual gym goer; it has just over 1,000 centers in the US (almost all of which are franchised).

It charges just $10 per month with a $49 sign-up charge for initial members and prides itself for being “judgment free,” with lots of grunting and dropping weights discouraged.

The company also has a premium membership ($20 per month) that allows members to bring a guest each visit and allows them to use any Planet Fitness gym.

Those more expensive memberships now account for more than half the total, but even so, Planet Fitness’ average charge per subscriber is about one-third the industry average.

As for locations, a big expansion is in process, with management aiming to double its numbers of fitness centers (all franchised) during the next seven years (it added 38 new locations in the second quarter alone).

Combine that with healthy same-store sales growth (up 7.3% in the second quarter), which is bolstered by a commitment from franchisees to purchase new equipment every few years, and we believe Planet Fitness can post solid growth numbers for many years to come.

It’s a good story. There’s not too much to analyze on PLNT’s chart, but there are two things we like.

First, while the stock got hit during the market’s mini-crash, it immediately snapped back toward its highs, notching a new relative performance peak in the process.

Second, PLNT’s technical action of the past month has created a nice-looking IPO base.

In a healthy market, we’d be all for buying shares on a big push above $20, but in a downtrend, we advise either keeping positions small or simply keeping PLNT on your watch list.

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