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Is Planet Fitness the Best Reopening Stock Right Now?

With restrictions lifting across the country, investors are thinking of smart ways to play the economic reopening. Industries decimated by the pandemic, like restaurants, retail, and airlines, come to mind. With consumers venturing out again and returning to some level of normalcy, you can certainly make the case for these types of stocks.

But there's another stock to consider taking a look at, and it's a business that was thriving before the pandemic.

Image source: Getty Images.

Strong momentum

In each of the first seven months of 2021, Planet Fitness (NYSE: PLNT), the franchisor and operator of low-cost fitness centers, registered net membership growth. What's more, the company has regained 75% of the customers that it lost amid the pandemic. This is clearly a positive sign for a business that not only experienced temporary closures during the pandemic, but that also depends on monthly subscription fees. Today, Planet Fitness has more than 15 million members.

Planet Fitness grew sales 241% year over year in the most recent quarter. It's worth mentioning that this is lapping an easy comparison, but the $137.3 million the business generated in the three-month period is higher than what it produced in each of the five quarters prior to Q2 2021.

Leaning heavily on its technological push, with a $5.99 monthly digital-only membership option, Planet Fitness hopes to keep bringing on newer customers, who then graduate to an in-person membership. "In June, nearly 40% of PF+ subscribers joined our brick-and-mortar location, underscoring that consumers want a more omnichannel fitness experience," CEO Chris Rondeau said on the second-quarter earnings call. Offering consumers an omnichannel experience is table stakes in the retail sector, so it makes sense that this carries over to the fitness industry as well.

The future of fitness

There's a good chance that the future of fitness is going to be hybrid, with consumers supplementing their home equipment with a gym membership. Mindbody, a software provider for the wellness industry, conducted a survey earlier this year that indicated that 65% of respondents plan to exercise both at home and in person in a post-COVID world. It's easy to see a situation where Planet Fitness' $10 a month option becomes a viable choice for most people to round out their workout routines. Plus, the general public's renewed focus on health and wellness supports the company's prospects.

Even Peloton Interactive (NASDAQ: PTON) has fallen back to earth. The booming maker of at-home fitness equipment saw its stock price skyrocket 434% in 2020 thanks to stay-at-home orders and the desire to get a convenient sweat on from the comfort of one's own home. But worries about waning demand for its high-priced equipment could be a signal that the reopening economy is a headwind for the business.

It appears that Planet Fitness, however, is turning the pandemic corner and is poised to get back to the rapid expansion that it experienced prior to 2020. From 2014 through 2019, sales jumped 146% and profit soared 263%. And over that five-year stretch, Planet Fitness more than doubled its store count, opening 1,083 net new locations. A resurgence of this trend could be waiting in the years ahead.

Looking ahead

Management firmly believes that Planet Fitness can double its current store count of 2,170 over the long term, which would obviously be a boon for revenue and profit generation.

On the most recent earnings call, Rondeau said: "I believe that the opportunity in front of us is significant. With so much potential given the changing market dynamics and the tailwinds behind the health and wellness, the 4,000 plus long-term domestic store opportunity looks better and better." The International Health, Racquet, and Sportsclub Association, a trade group, reckons that 22% of gyms closed in the U.S. as a result of the pandemic, giving Planet Fitness a lucrative opportunity to gobble up market share.

For the full year of 2021, the leadership team expects revenue of $530 million to $540 million (32% year-over-year growth at the midpoint). Although this is below levels seen in 2018 and 2019, Planet Fitness is definitely heading in the right direction. Management doesn't provide a membership outlook, so shareholders should look for commentary about this when the business reports third-quarter financial results sometime in November.

For investors seeking a reopening play, Planet Fitness could bulk up your portfolio.

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Peloton Interactive and Planet Fitness. The Motley Fool has a disclosure policy.


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