With its shares currently down 97% from their all-time high, some investors might have their eyes on Peloton Interactive as an opportunity with huge upside. The management team is trying to right the ship, and should they start making substantial progress, the stock could soar.

But in the fitness industry, there are better investment candidates, or at least ones that have much lower downside risk. Consider Planet Fitness (PLNT 0.65%) -- the low-cost gym operator might make you forget all about Peloton.

Getting back in shape

As a brick-and-mortar fitness center chain, Planet Fitness was hit hard during the depths of the coronavirus pandemic due to social-distancing restrictions and other health orders. Revenue dipped 41% in 2020 when many of its gyms were temporarily closed. Its stock cratered, falling 69% between Feb. 20 and March 18 of that year.

But four years later, the business is back on solid footing and benefiting from strong momentum. This is the opposite of what's been happening with Peloton, which found itself on top of the world in the first year of the pandemic and is now fighting to survive.

In 2023, Planet Fitness reported revenue of $1.1 billion, up 14.4% from the previous year. This was driven by the opening of 165 net new locations, bringing the total to 2,575, and same-store sales growth of 8.7% (although there was a minor slowdown in the fourth quarter).

It's even more encouraging if we zoom out. Revenue in 2023 was up 60% compared to 2019's total with the store count expanding 29% from the end of that year. This is a much larger enterprise than it was four years ago.

Investors can expect more growth in the years ahead, thanks to findings from third-party market studies about the potential expansion opportunity. "We now believe we can have 5,000 gyms in the U.S., up from 4,000 at the time of our initial public offering in 2015," said interim CEO Craig Benson on the Q4 earnings call.

What initially seemed like a devastating blow to the enterprise, Planet Fitness might end up benefiting greatly from the COVID health crisis. It's estimated that by June 2021, more than 20% of all gyms in the U.S. had to close their doors permanently. As the largest brand in the industry with national marketing capabilities and sizable financial reserves, Planet Fitness could end up getting favorable real estate at attractive pricing to execute its expansion plans

Generating strong bottom-line performance isn't an issue for this business. In the last five years, Planet Fitness' operating margin averaged a superb 24.6%. Running a franchise model has clearly proven to be a lucrative strategy.

As more revenue is generated going forward, it's reasonable to expect continued margin expansion. In 2019, operating margin was 33.8% versus 25.5% last year.

Valuation and risk

While Peloton may attract some speculators with its rock-bottom price, successfully executing a turnaround of this magnitude is an extremely difficult task for any management team. From an investor's perspective, it adds a lot of risk and uncertainty to the mix.

That being said, I'm not sure Planet Fitness is necessarily the best stock to own in this industry. The recent departures of both its CEO and CFO add uncertainty to the equation, and they could point to deeper issues within the organization.

Despite these negative factors, Planet Fitness certainly still looks like a much more promising company to buy and hold than Peloton. And trading at a forward price-to-earnings ratio of 24.9, investors aren't being asked to pay an excessive valuation. Of course, it all depends on your conviction as it relates to the fitness company's long-term success.