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Can Planet Fitness Stock Keep Going After Last Week's 14% Pop?

By Rick Munarriz - Feb 26, 2018 at 3:28PM

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The low-cost gym operator hit new highs after cranking out another blowout quarter.

Consistent reps are triggering new all-time highs at Planet Fitness (PLNT 4.25%). Shares of the discount gym operator hit new highs after posting another quarter of better-than-expected growth last week. Thursday's strong earnings news helped send the stock up 14.3% for the week.

Momentum is carrying over into this new week, with Planet Fitness hitting even more all-time highs on Monday. Jaw-dropping comps, brisk expansion, and a climate ripe for a fitness center chain that offers economical workouts without a lot of hurdles to buy in or bow out of membership are paying off for Planet Fitness and its shareholders. The stock has now nearly doubled since the start of last year and nearly tripled if we push the starting line a year earlier. 

Exterior shot of a Planet Fitness at night.

Image source: Planet Fitness.

Heavy lifting

The fourth quarter rocked for Planet Fitness. Revenue rose 15% to $134 million as an 11.6% spike in systemwide same-store sales combined with new openings over the past year to deliver the gym operator's strongest top-line growth since the third quarter of 2016. 

The surge in comps is impressive, but it's par for the course here. Planet Fitness has now strung together 44 consecutive quarters of positive same-store sales growth. Gyms are often prone to cyclical lulls, but the cost-effective Planet Fitness has helped deliver consistent unit-level gains for the past 11 years. 

Planet Fitness' adjust earnings rose 19% to $23.5 million, or $0.24 a share. Analysts were only modeling an adjusted profit of $0.23 a share on $131.1 million in total revenue. 

An important part of the Planet Fitness model is how its big-box centers are sliding into regional strip malls where landlords are hungry to fill the vacancies. The undeniable fade of brick-and-mortar chains -- from bookstores to department stores -- is paving the way for Planet Fitness locations. It's a clear beneficiary of the retail apocalypse. A whopping 88 new locations opened during the period and 210 for all of 2017, leaving it at 1,518 locations by the end of last year. 

The model is resonating with folks that are not your typical workout junkies. Monthly rates start at $10, topping out at $20 for a more full-featured membership. Planet Fitness lacks the frills of full-service gyms that offer organized gym classes or kid care programs, but for $10 a month it's a much cheaper option than buying gym equipment. Active memberships topped 10 million, and there doesn't appear to be any slowing down. 

Planet Fitness is offering up aggressive goals for all of 2018, forecasting revenue and adjusted earnings per share to grow 20% and 40%, respectively. The chain has typically been conservative in its outlooks, so that's a lot of growth on both ends of the income statement to throw out there this early in the year. 

The company announced last week that its board has authorized an additional $80 million in stock buybacks, a fivefold increase for its repurchases. Planet Fitness is at the right place at the right time, and the market's pumped about the stock's prospects. As long as the blowout quarters continue, the market-thumping returns should follow suit.

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