What happened
Shares of gym chain Planet Fitness (PLNT 1.69%) fell 18.9% in the first half of 2020, according to data provided by S&P Global Market Intelligence. To say it's been a bumpy ride is an understatement. From February to March, the stock was down around 70%, but then it climbed right back to where it started the year.
Planet Fitness stock is actually down 19% in just the last month. And a June 29 press release from the Monongalia County Health Department in West Virginia exemplifies why it's going down.
So what
Gyms aren't great spaces to keep open when trying to stop a pandemic's spread. Health officials and local governments ordered many gyms closed, and there will be lasting consequences. Both Gold's Gym and 24 Hour Fitness filed for bankruptcy, demonstrating the obvious financial burden when doors are forced shut.
For its part, Planet Fitness was in a strong financial situation when the coronavirus pandemic started, and it could gain more market share while its competitors climb out of bankruptcy. Around half of its locations have reopened, membership metrics are unchanged, and gym traffic is returning. All of this explains why the stock came back from March lows.
But the news out of West Virginia is a reminder of how fragile the situation is. A Planet Fitness member tested positive for the coronavirus, prompting the local health department to encourage gym members to self-quarantine.
It's one event in a troubling trend. Cases of COVID-19 are rising around the country, and state governors are starting to reevaluate whether gyms should be open. In light of this development, Planet Fitness stock has been trending down over the past month.
Image source: Getty Images.
Now what
Right now, one of the most important pieces of information for Planet Fitness shareholders is something they don't have access to. It is primarily a franchised business. Therefore, the financial health of the franchisees is crucial information. It's possible for a franchiser to weather a prolonged storm -- like Yum! Brands for example. But a Yum! Brands franchisee, with a whopping 1,200 Pizza Hut locations, just filed for bankruptcy.
This demonstrates it's possible for Planet Fitness to be fine financially while the individual gym operators might not be. There's no way to know for sure; we just don't have concrete information on that.
When its gyms are allowed to operate normally, there's no question Planet Fitness is a top stock to buy. But if the coronavirus causes gyms to close again for an extended time, it could be rough for shareholders for the remainder of 2020. Investors worried about the COVID-19 trend might choose to wait on Planet Fitness for now, electing a safer stock instead.
