People have become more health conscious since the turn of the century. Whether it be the rise of organics, fad diets, or yoga clinics, the evidence is in: Health and fitness are now huge industries. Some studies peg the market opportunity for wellness at well over $3 trillion. With that in mind, here are two stocks that will allow you to capitalize on this health and fitness craze.
MindBody (NASDAQ: MB) provides cloud-based management software to wellness companies that includes client relationship management, appointment booking, payments integration, analytics, and much more. Similar to the competitive advantage salesforce.com enjoys, once businesses start using MindBody, it becomes hard to switch platforms, since it's time-consuming and costly to teach employees how to operate a whole new system.
This advantage has shown up in the financials, as the company has grown revenue from $48 million in 2013 to over $150 million this year. The company is running along swimmingly, and management has sweat equity (ah, fitness puns). The co-founder has over $60 million in stock, which means his interests are aligned with ours as investors. The company isn't profitable yet, but losses are narrowing quickly, as net margin has improved 22% in the past two years. Plus, the company is now cash flow positive.
The future is looking bright as well. Management is targeting high-value subscribers to improve unit economics, and the company added 11% more high-value subscribers in the latest quarter. And with the latest acquisition of technology company Lymber, MindBody is rolling out Reserve for Google. Basically, Google is helping with dynamic time-sensitive pricing for leftover wellness appointments, similar to how Priceline Group operates with open hotel rooms.
A judgment-free zone
Planet Fitness (NYSE:PLNT). You may have seen its yellow and purple advertisements or know a friend with a membership. The whole atmosphere of this gym is different from what you think of in traditional workout facilities. Planet Fitness brands itself as a "judgment-free zone." "Lunk" behavior, such as dropping weights and grunting, are strongly discouraged, and a "lunk alarm" goes off when a gym-goer violates the ground rules.
Planet Fitness is creating a friendly, unintimidating environment for anyone trying to improve his or her physical health. The interesting thing about Planet Fitness is how its differentiation is in the direction of a bigger market. Usually, businesses differentiate themselves by appealing to more of a niche market. But this company makes itself stand out by appealing to the masses.
Management thinks it can eventually open 4,000 gyms, which would be a big expansion from the current count of just under 1,400. The value proposition is there, as memberships start at a flat fee of $10 per month, which is something Planet Fitness can do because it runs a tight ship. No pools, no day care, no sauna. It simply provides a safe space for people to work out. (I went to a location and worked out the other day. It's true -- no grunting and dropping weights!) To top it off, over 90% of the stores are franchisee operated, so Planet Fitness doesn't deal with carrying much inventory, which means gross margin has expanded to almost 54%, from 42% in 2013.
Both companies have small market caps. MindBody's is around $1.1 billion, and Planet Fitness comes in at about $2.2 billion. That may mean some extra volatility, so be aware. Plus, both companies are growing rapidly, so one bad mistake by management could send the stock into a muscle spasm. However, both are primed to benefit from the health craze that appears here to stay.
As people become even more health conscious, MindBody and Planet Fitness are positioned to take full advantage.