PLNT - Embedded Expectations Analysis - 2019 03 22
Planet Fitness (PLNT:USA) currently trades at historical highs relative to UAFRS-based (Uniform) Earnings, with a 34.7x Uniform P/E. However, even at these levels, the market is pricing in expectations for Uniform ROA to remain relatively flat, withlower-than-average Uniform Asset growth. Although negative management sentiment suggests the potential for near-term headwinds, market expectations are too muted in the context of the firm's historical performance and strong fundamental tailwinds, suggesting long-term equity upside remains warranted.
Specifically, management may have concerns about their ability to sustain franchise store growth and capitalize on new growth opportunities. Additionally, they may lack confidence in their ability to sustain operating income, equipment sales, and store acquisition growth, and may be downplaying concerns about continued equipment commission and franchise fee declines. Moreover, they may be concerned about their ability to utilize segmentation study data to personalize member experience and fitness services, and may be overstating their app's fitness functionality and technology initiative progress.
Although management's concerns about franchise growth rates, commissions and fees, and membership experience suggest the potential for near-term headwinds, market expectations for Uniform ROA compression still appear too muted. As such, multiple expansion and equity upside continue to be warranted in the long-term.
Planet Fitness is a holding company. Through its subsidiries, the company is engaged as a franchisor and operator of fitness centers. The company's stores include co-branded cardio equipment, free weights, strength machines, a workout area, a small retail area and a drink cooler. The company operates and manages its business in three business segments: Franchise, which includes operations related to its franchising business in the U.S., Puerto Rico, Canada, the Dominican Republic and Panama; Corporate-owned stores, which includes operations with respect to all corporate-owned stores throughout the U.S. and Canada; and Equipment, which includes the sale of equipment to franchisee-owned stores in the U.S.
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