Parag Vora and HG Vora Capital Management Betting Big on Fitness

Parag Vora’s HG Vora Capital Management has gone activist on Town Sports International Holdings, Inc. (NASDAQ:CLUB) and also increased its stake in the company. HG Vora Capital Management’s recent filings with the Securities and Exchange Commission (SEC) show that the fund increased its exposure to Town Sports International Holdings, Inc. (NASDAQ:CLUB) to 3.875 million shares from 3.3 million shares it held earlier On June 26, we had reported the fund increasing its stake in Town Sports International to 3.08 million shares.

Parag Vora - HG Vora Capital

The fund initiated stake in Town Sports International Holdings, Inc. (NASDAQ:CLUB) during second quarter of this year by purchasing 1.3 million shares. Before the latest filing, HG Vora Capital Management held its stake as a passive investor. However, the recent filing highlight that the fund may engage in discussions with the company’s “stockholders, management, Board or third parties with respect to strategies to maximize stockholder value or means to improve the Issuer’s governance”.

HG Vora Capital Management is an event-driven and value-oriented hedge fund. Its partners, Parag Vora (Founder and Portfolio Manager) and Gary Moross, have 35 years of combined experience in advising and investing in sub-investment grade businesses. During September, the fund initiated a stake in Orbitz Worldwide, Inc. (NYSE:OWW) by purchasing 5.85 million shares, and also in Life Time Fitness, Inc. (NYSE:LTM), by purchasing 2.01 million shares of the company.

Town Sports International Holdings, Inc. (NASDAQ:CLUB) is a $142 million market cap, health and fitness company, it is the third largest fitness club operator in the United States and the largest owner and operator of fitness clubs in the Northeast and Mid-Atlantic regions of the United States. On September 12, the company announced that it has completed the sale of one of its New York City-based property to Monty Two East 86th Street Associates LLC for approximately $85.5 million. On August 27, John H Flood III, a director of Town Sports International Holdings, Inc. (NASDAQ:CLUB), purchased 9,000 shares at an average price of $5.29, taking his total holding in the stock to over 74,000 shares.

The company’s stock has had a rough ride since last year, it is down by almost 55%. However, that makes it more lucrative than its peers as it currently trades at 0.30 times trailing sales, while the industry average trailing P/S is 1.81. Apart from HG Vora Capital Management, other major institutional investors who own Town Sports International Holdings, Inc. (NASDAQ:CLUB) include Farallon Capital, founded by Thomas Steyer, and Jim Simons’ Renaissance Technologies. As of June 30, 2014 Farallon Capital owns over 4 million shares and Renaissance Technologies owns over 855,000 shares. The analyst community overall maintains a ‘Hold’ rating on the stock, with an average price target of $6.25. Yesterday, analysts at Zacks upgraded their rating on the stock to ‘Neutral’ from ‘ Underperform’ while maintaining the price target of $6.

Though usually one can’t find a growth stock in the health and fitness sector, one highlight of this sector is that it is relatively stable because no matter what happens in the future, people won’t stop caring about their health. HG Vora Capital Management is making big bets on other fitness stocks as well, which means that the fund is overall bullish on the whole sector and not just on an individual company.

Disclosure: None