Please ensure Javascript is enabled for purposes of website accessibility

Why Planet Fitness Stock Fell 18% in September

By Jeremy Bowman - Oct 8, 2019 at 7:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the discount gym slipped as investors seemed to believe the stock had gotten to be overvalued.

What happened

Shares of Planet Fitness (PLNT -3.11%) weren't looking so fit last month. The discount gym's stock dropped 18%, according to data from S&P Global Market Intelligence

There was no company-specific news out on Planet Fitness. Rather, the stock seemed to drop as investor sentiment turned after the stock peaked over the summer. Meanwhile, investors seemed to be moving away from growth stocks more generally. A number of high-priced stocks fell last month, as investors instead piled into value plays in the retail and energy sectors, among others.

A Planet Fitness trainer smiling at a woman exercising.

Image source: Planet Fitness.

The stock slid steadily over the course of the month, showing that no single event caused the sell-off:

PLNT Chart

PLNT data by YCharts

So what 

The subscription-based budget gym has been an outperformer since its 2015 IPO, having risen as much as 400% since its debut. The company has benefited from a changing retail environment that has seen mall vacancies spike, leading to landlord demand for tenants like Planet Fitness that can bring in customers frequently.

However, for a commodity business, the valuation often looks stretched. And the market seems to have called the end of the rally, given that September marked the second straight month of double-digit losses for Planet Fitness. 

What also may have contributed to the sell-off last month was the disappointing debut of Peloton (PTON -0.08%), the maker of at-home interactive bike and exercise machines. Although Peloton, which sells its machines for upwards of $2,000, is not a direct competitor of Planet Fitness, which caters to a more a price-sensitive customer, the weak performance of Peloton may signal the market's lack of interest in fitness stocks.

Peloton shares are down 20% from their IPO two weeks ago.

Now what 

Despite the sell-off last month, Planet Fitness' growth path continues to look solid. The company has nearly 2,000 locations and sees room in the market for 4,000,  and its franchise model has been able to generate high margins. However, at a P/E ratio of 46, the stock is still pricey by conventional standards. The stock has fallen by about 3% so far in October, a sign that the stock may have further to slide before it reaches an equilibrium point.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Planet Fitness. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Planet Fitness, Inc. Stock Quote
Planet Fitness, Inc.
$74.71 (-3.11%) $-2.40
Peloton Interactive, Inc. Stock Quote
Peloton Interactive, Inc.
$11.91 (-0.08%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.