Planet Fitness, Inc. (PLNT): A Bull Case Theory

We came across a bullish thesis on Planet Fitness, Inc. (PLNT) on The Elevator Pitch’s Substack. In this article, we will summarize the bulls’ thesis on PLNT. Planet Fitness, Inc. (PLNT)’s share was trading at $104.8 as of 22^nd May. PLNT’s trailing and forward P/E were 49.67 and 35.97 respectively according to Yahoo Finance.

Planet Fitness (PLNT) is the leading US gym operator with about 20 million members, running an asset-light franchise model focused on the “high-value low-price” (HVLP) segment. Its large, no-frills gyms offer clean, basic facilities at a low monthly fee of $15, attracting a broad customer base including beginners, students, and lower-income individuals.

The company benefits from strong growth drivers like healthy aging, rising fitness awareness via social media, and GLP-1 weight-loss drugs encouraging exercise, which have increased gym membership penetration in the US. PLNT dominates the market, capturing roughly 90% of new members between 2011 and 2019 and holding a 30% share of total US gym-goers, far larger than competitors.

With over 2,500 gyms, PLNT targets about 5% annual unit growth, carefully opening locations to avoid cannibalization. Pricing power is driven by its “Black Card” membership, now 64% of members. Scale allows strong brand recognition and marketing, while recurring revenue from franchise royalties and equipment sales adds cash flow stability.

Franchisees achieve EBITDA margins of 35-40%, like high-end hotels but with much lower startup costs. Despite recent CEO changes and a brief PR issue, Planet Fitness has shown resilience through recessions, delivering 18% revenue CAGR over the last decade. The asset-light model drives a group EBITDA margin near 40%, with improving free cash flow conversion and recovering ROIC expected to approach pre-pandemic levels above 25%. Though valuation is demanding at 20x EV/EBITDA, PLNT offers sticky revenue, growth potential, margin expansion, and international upside optionality.

Planet Fitness, Inc. (PLNT) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 41 hedge fund portfolios held PLNT at the end of the fourth quarter which was 34 in the previous quarter. While we acknowledge the risk and potential of PLNT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PLNT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.