Return Of The King

Return Of The King

We are long-term investors here at MyWallSt and recommend companies that we believe will have consistent growth for years to come. Updates are an opportunity for us to reaffirm our stance on a company while keeping you up to date on its developments. By renewing our comments with the latest information, we ensure that investors have confidence in our selections, regardless of their start date.

Planet Fitness subtly dominates the gym world by defying all expectations.

When you think of the gym, you think of deadlifting. You think Arnold Schwarzenegger, bros who look like they have a tiny set of shoulders within their shoulders, and a deep-seated anxiety that what you're doing is wrong even though you're just walking on the treadmill. This is the environment Planet Fitness was hoping to disrupt when it was founded in 1993. The concept was originated by Rick Berks, who had previously operated a Gold's Gym franchise catering towards bodybuilding. After several years, Berks decided he “didn't want to deal with that crowd" and set out to create a gym that was welcoming to everyday people. He got the name Planet Fitness from his daughter's school project "Fitness Planet''.

Flash forward to today and Planet Fitness' purple reach can be seen all across the United States and a few neighboring countries. The concept is simple, membership is cheap, equipment is common and easy to use, and showboating behavior is strictly prohibited. The company hopes this will encourage anyone even remotely tempted by a gym to join, and it would appear to be working. Planet Fitness is the market leader with 20% market share and is the second most recognizable gym in the U.S. (first by a long shot in the discount gym space).

When it comes to investments, the discount gym space would appear to be the place to be, because, in this instance, quantity may just outpace quality. Casual gym-goers can be inconsistent and that's ok, Planet Fitness is a "Judgement Free Zone", but it also means that each gym can sell way more memberships than it has space or equipment. Most locations have ten times the number of members than can fit in the gym at any one time. Astonishingly, an estimated 50% of Planet Fitness' members never step into the gym after paying for membership. These wishful thinkers, resolution makers, and procrastinators are the lifeblood of Planet Fitness and their recurring revenue isn't going anywhere. The $10 membership fee is a reasonable price to pay to never give up on your fitness dreams.

This keeps same-store sales on the rise as new members funnel in and few members drop out. Those who do make the trip to the gym often spend more to maximize their workout. For $22.99, you can upgrade to a PF Black Card, which includes a free guest pass, entrance to every PF location, and access to amenities like spas, juice bars, and pools. As of Planet Fitness' latest quarter, more than 60% of members had upgraded. CEO Chris Rondeau believes this membership level has significant pricing power and hopes to eventually increase it to $30 as locations and amenities expand.

While the company did struggle in the wake of the pandemic and stay-at-home orders, things seem to be back on track. Better yet, Planet Fitness doesn't appear to be stumbling in the wake of the Peloton-fueled, at-home fitness boom as the brands' have dissimilar target markets.

As of Q3 2021, Planet Fitness' membership levels were 97% of its all-time peak, same-store sales growth had returned at 7.2%, and revenue was nearing pre-pandemic levels. With plenty of expansion on the horizon and an industry-leading EBITDA margin, Planet Fitness is still a stock worth looking at.

We have updated our comments on Planet Fitness. To view them, click on the stock button below.

Anne MarieAnne Marie

Sign up for free to continue reading.