Over the past six months, Planet Fitness’s shares (currently trading at $97.04) have posted a disappointing 11.8% loss, well below the S&P 500’s 10% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Planet Fitness, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Planet Fitness Will Underperform?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons there are better opportunities than PLNT and a stock we'd rather own.
1. Same-Store Sales Falling Behind Peers
Investors interested in Leisure Facilities companies should track same-store sales in addition to reported revenue. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into Planet Fitness’s underlying demand characteristics.
Over the last two years, Planet Fitness’s same-store sales averaged 6.1% year-on-year growth. This performance was underwhelming and suggests it might have to change its strategy or pricing, which can disrupt operations. 
2. Free Cash Flow Projections Disappoint
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the next year, analysts’ consensus estimates show they’re expecting Planet Fitness’s free cash flow margin of 15.7% for the last 12 months to remain the same.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Planet Fitness’s ROIC averaged 4.2 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Planet Fitness, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 29× forward P/E (or $97.04 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
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