PLNT

Publicly traded companies mentioned herein: Dollar Tree Inc (DLTR), Domino’s Pizza Inc (DPZ), Planet Fitness Inc (PLNT)

Highlights

The presenter is long shares of Planet Fitness Inc (PLNT), the largest HVLP gym franchise concept in the US with 18.4MM members across almost 2,500 locations. PLNT was a great stock pre-COVID; the company was delivering attractive unit economics, mid-teen% unit growth, HSD% comps, and >20% EBITDA growth, all of which helped to justify its 20x – 25x EBITDA valuation. When the pandemic began, the gym industry was significantly impacted, and the recovery has taken longer than expected. Members per location are just about back to 2019 levels, and system revenues per store are now slightly above 2019 levels due to price increases on the Black Card membership tier. While the business was getting back on track, interest rates increased, which has weighed on new unit economics and caused a slowdown in unit growth. Between these issues and management turnover, the stock troughed almost 50% from its 52-week highs. However, at the current $51 share price (~15x LTM EBITDA), the presenter now sees asymmetric risk/reward with a $70 fair value today and downside to just ~$45, with the potential for significant incremental upside from pricing that would improve the new unit economics, spur new unit acceleration, and lead to multiple expansion.