Since June, Nike's (NYSE:NKE) and Planet Fitness' (NYSE:PLNT) share prices have been on divergent paths. This year, Nike's stock has gained 22%, while Planet Fitness' shareholders have endured a 14% loss.
In choosing which one is the better investment right now, is it preferable to go with the company whose stock has hit a snag or the one that has done well during trying times? Let's find out which company offers investors better prospects.
Nike has stayed on top of the athletic footwear and apparel market for a very long time. It has managed to maintain its competitive advantage for a variety of reasons. This includes its stable of athletes, coaches, and teams that endorse the products, and this kind of marketing prowess creates tremendous brand awareness.
Of course, this isn't enough to drive sales growth for an extended period of time. Nike is also constantly innovating and putting out new products. It also has a long track record of success, so I wouldn't bet against Nike. During the first quarter, it added new styles to its Air Max lineup, and it continues to launch products in its NIKE NEXT% platform.
With many retail stores closed due to the pandemic, Nike's results suffered earlier in 2020. Its fiscal fourth-quarter adjusted revenue fell by 36% versus a year ago to $6.3 billion. This led to a $790 million loss compared to a $989 million profit. The period ended on May 31.
For the first quarter, revenue was $10.6 billion, which was flat after excluding the effects of foreign currency translations. While many stores reopened, Nike's top line was hurt by various governmental restrictions that curtailed traffic.
However, with strong products and its marketing strength, along with an increasing digital presence (79% year-over-year revenue rise), Nike should resume growth shortly.
Planet Fitness, with more than 2,000 mostly franchised gyms, was growing at a nice clip before the COVID-19 pandemic struck. Over the last five years, it doubled its number of gyms. During that time, revenue grew at over a 20% annual rate, and earnings increased at better than a 37% yearly rate.
Its low monthly fees ($10 for the basic membership) and "judgment-free zone" helped Planet Fitness attract members who might have felt intimidated by the typical gym environment filled with ultra-fit people working out.
Unfortunately, state and local governments imposing rolling restrictions have seriously hurt the company's results. Planet Fitness' second-quarter revenue dropped by 78% compared to a year ago to $40.2 million. It also lost $32 million, reversing last year's $39.8 million profit, both on a U.S. GAAP basis.
If there were concrete signs that the virus was passing, Planet Fitness, with its share price down sharply for the year, might make a compelling investment. Unfortunately, COVID-19 cases have been spiking in many U.S. states, and many local officials are reimposing various restrictions. While more than 70% of its gyms were open as of early August, there's no way to know if authorities will force Planet Fitness to close its facilities to the public. Planet Fitness is not charging monthly fees to members who do not have access to the gyms.
This makes it challenging to invest in Planet Fitness' stock right now. On the other hand, Nike has hit a little speed bump, but its strong offerings and customers' ability to order online make it the more compelling stock investment.