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Investing in Gym Stocks

By Adam Levy – Updated Jun 10, 2022 at 3:26PM

Staying healthy and looking good will never go out of style. Whether you’re trying to improve your cardiovascular health or want to get stronger, it pays to work out at home or hit the gym.

While gym memberships and home exercise equipment cost money, you might be able to recoup that expense by investing in the most profitable gym stocks.

Best fitness stocks

Here are six of the best gym companies to watch this year:

Data as of Jan. 20, 2022.
Company Market Capitalization Description
Planet Fitness (NYSE:PLNT) $7 billion Owns and franchises a chain of low-priced gyms, primarily in the U.S.
Peloton (NASDAQ:PTON) $9 billion Sells connected bikes and treadmills and monthly subscriptions.
Nautilus (NYSE:NLS) $160 million Sells home workout equipment under the Bowflex, Schwinn, and Nautilus brands, plus a digital subscription under the JRNY brand.
Lululemon Athletica (NASDAQ:LULU) $41 billion Retailer specializing in workout apparel for women and men.
Garmin (NASDAQ:GRMN) $24 billion Develops and sells a range of devices, including fitness trackers and adventure watches, specializing in GPS technology.
Life Time Group Holdings (NYSE:LTH) $3 billion Luxury gym owner in the U.S. and Canada.

1. Planet Fitness

Planet Fitness (NYSE:PLNT) operates a chain of ultra-low-cost gyms with monthly fees as low as $10. With more than 2,000 locations, the company prides itself on being inclusive of all fitness levels.

Most Planet Fitness gyms are located in the U.S. Management has a long-term goal of reaching 4,000 locations in the U.S. alone, and the company has plenty of opportunity to expand internationally.

Most Planet Fitness locations are franchises, but the company also directly operates more than 100 facilities. The franchise business model results in a very high operating margin with low capital intensity.

Planet Fitness is well positioned to capture market share after many of its competitors closed their doors permanently due to the coronavirus pandemic. After stronger-than-expected results in the summer of 2021, management raised its outlook for store openings. Profits are likely to increase as people start going back to the gym.

2. Peloton

Peloton (NASDAQ:PTON) is known for its connected stationary bikes and other home workout equipment. Although users must purchase Peloton equipment, the company earns most of its revenue from the subscriptions required to fully utilize its bikes and treadmills.

Peloton has more than 2 million subscribers who pay $40 per month for a connected fitness subscription. Nearly 1 million more pay $13 per month for the digital-only subscription. Digital subscriptions are immensely profitable for Peloton, which has a gross margin of more than 60%.

The home gym company thrived during the pandemic since most people were confined to their homes. But, as the pandemic subsides and gyms reopen, the company hasn’t maintained its pace of growth.

After it couldn’t keep up with demand in 2020, Peloton planned to halt production on equipment in early 2022, according to an internal company memo seen by reporters. CEO John Foley rebutted the report, claiming that it lacked context, but he did say that Peloton is looking to “right-size” production levels and staffing, cutting costs where it can. Meanwhile, the company is raising the price on its equipment through additional fees for delivery and setup.

People working out at the gym
Source: Getty Images

3. Nautilus

Nautilus (NYSE:NLS) is the owner of well-known home gym equipment brands such as Bowflex, Schwinn, and its namesake Nautilus brand. The company also benefited from the pandemic, posting record highs in revenue and nearly doubling its year-over-year sales in 2020.

Nautilus, which is focused on connected fitness, launched its JRNY digital subscription product at the end of 2019. It expects to reach 250,000 subscribers by the end of fiscal 2022 and 2 million by the end of 2026, at which point connected fitness will likely account for about 20% of the company’s revenue.

Although Nautilus’ brands allow it to operate with strong margins and produce a profit, connected fitness represents a significant opportunity for the small-cap stock to generate attractive, reliable profits on a long-term basis. If management meets its subscriber goals, Nautilus’ revenue split between equipment and subscriptions would be on par with rival Peloton.

4. Lululemon Athletica

While many apparel retailers have struggled during the pandemic, Lululemon Athletica (NASDAQ:LULU) managed to expand its sales and gross margin. In 2020, the company, which is best known for its yoga pants and accessories, successfully generated more sales from e-commerce.

Management is expecting to increase the company's 2021 revenue to more than $6 billion -- up from $4 billion in 2019 -- representing an acceleration from pre-pandemic growth rates. Lululemon’s brick-and-mortar retail operations are once again operating at full capacity, and the number of Lululemon stores is increasing.

The company also moved into the connected fitness space with its 2020 acquisition of Mirror. This $1,500 home gym device requires a $40-per-month subscription, and Lululemon is uniquely positioned to leverage its retail stores to drive sales of the service. While the product will likely continue to be a drag on profits for the next few years, successfully scaling this connected fitness offering to millions of subscribers will produce plenty of long-term recurring revenue for the company.

5. Garmin

Garmin (NASDAQ:GRMN) started by manufacturing global positioning system (GPS) navigation devices for automobiles. Today, the company generates the bulk of its revenue from personal fitness devices such as smartwatches, fitness trackers, cycling power meters, and heart rate monitors. Consumer demand for fitness trackers continues to grow as more people look for ways to enhance their health.

Garmin expected 2021 to be the sixth consecutive year its revenue has increased. The company’s management is aggressively investing in research and development, which should ensure that Garmin maintains its gains in market share while also expanding into new markets.

6. Life Time Group Holdings

Life Time Group Holdings (NYSE:LTH) operates more than 150 luxury fitness centers in the U.S. and Canada. Many of its high-end gyms were forced to close during the pandemic, but Life Time has reopened and is building new centers. It has plans for 12 new fitness centers in the works. Revenue is trending back toward 2019 levels and should return to its pre-COVID run rate in 2022.

As a luxury brand, Life Time has the opportunity to increase the value of its memberships more than low-cost gyms catering to budget-conscious consumers such as Planet Fitness. That’s especially true as members return to physical gyms. The company still has thousands of members on digital-only subscriptions, which don’t provide access to its centers. But its fitness centers have opportunities to provide value-added services such as dining, spa treatments, and personalized services.

Are gym stocks right for your portfolio?

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 plenty of cash is likely the most profitable approach.

The performance of gym stocks can vary seasonally since 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.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica, Peloton Interactive, and Planet Fitness. The Motley Fool has a disclosure policy.

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