Planet Fitness Stock Is Estimated To Be Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Planet Fitness (NYSE:PLNT, 30-year Financials) gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $75.02 per share and the market cap of $6.5 billion, Planet Fitness stock is estimated to be significantly overvalued. GF Value for Planet Fitness is shown in the chart below.


Planet Fitness Stock Is Estimated To Be Significantly Overvalued
Planet Fitness Stock Is Estimated To Be Significantly Overvalued

Because Planet Fitness is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.

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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Planet Fitness has a cash-to-debt ratio of 0.23, which is in the middle range of the companies in Travel & Leisure industry. The overall financial strength of Planet Fitness is 3 out of 10, which indicates that the financial strength of Planet Fitness is poor. This is the debt and cash of Planet Fitness over the past years:

Planet Fitness Stock Is Estimated To Be Significantly Overvalued
Planet Fitness Stock Is Estimated To Be Significantly Overvalued

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Planet Fitness has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $406.6 million and loss of $0.18 a share. Its operating margin of 14.70% better than 87% of the companies in Travel & Leisure industry. Overall, GuruFocus ranks Planet Fitness's profitability as fair. This is the revenue and net income of Planet Fitness over the past years:

Planet Fitness Stock Is Estimated To Be Significantly Overvalued
Planet Fitness Stock Is Estimated To Be Significantly Overvalued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Planet Fitness is -2.4%, which ranks in the middle range of the companies in Travel & Leisure industry. The 3-year average EBITDA growth rate is -37.8%, which ranks worse than 89% of the companies in Travel & Leisure industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Planet Fitness's ROIC was 4.77, while its WACC came in at 8.82. The historical ROIC vs WACC comparison of Planet Fitness is shown below:

Planet Fitness Stock Is Estimated To Be Significantly Overvalued
Planet Fitness Stock Is Estimated To Be Significantly Overvalued

Overall, Planet Fitness (NYSE:PLNT, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 89% of the companies in Travel & Leisure industry. To learn more about Planet Fitness stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.