Benefits and risks of investing in gym stocks
Benefits:
- Gym and fitness stocks capitalize on growing health consciousness among consumers. People are highly willing to pay for positive health outcomes.
- Most gyms and many fitness products receive recurring revenue, making their top-line growth highly predictable.
Risks:
- Some gyms and health products can experience very high churn rates, requiring them to continually fill the bucket. A sudden drop in gross additions can cause a shortfall in key metrics, leading to a drop in the stock price.
- If a gym owner builds its own gyms (as opposed to franchising), it has to invest significant upfront capital to open a new location, with uncertainty about how well it will attract new members.
- Gym memberships and equipment are discretionary purchases subject to economic cycles.
Methodology: How these stocks were chosen
These stocks represent the best available publicly traded stocks across gym brands, athletic apparel, and fitness technology. For the most part, gym and fitness stocks are slow-growing businesses in mature markets. That makes valuation a key consideration when evaluating the stocks.
Another key component of each of the above stocks is their brands. As consumer-facing companies, a strong brand can support higher prices and sustain operating margins amid weakening consumer cycles. They're all likely to overcome any setbacks or revenue resets and return to new revenue records in the long run.
Should you invest in gym stocks?
Gyms, connected fitness, and digital subscriptions all generate recurring revenue, which can lead to more predictable revenue growth. Subscriptions can also provide a strong revenue base for companies to sell equipment or apparel. Focusing on investing in companies with business models that generate ample cash flow is likely the most profitable approach.
The performance of gym stocks can vary seasonally, as many people focus more on their health around the New Year. But despite that potential price volatility, adding a top gym stock to your portfolio may be just the right fit for you. At the very least, buying stock in a fitness company may make you feel better about paying for an unused gym membership or a Peloton that you hang clothes on.
