Top 5 Companies I Like Now: Planet Fitness

Top 5 Companies I Like Now: Planet Fitness


David Gardner: Stock #4 this week is Planet
Fitness. Planet Fitness is trading recently at about $14 a share. The market cap? Kind
of the same size as Ellie Mae, a smaller company. It’s $1.4 billion. This is one of our most
recent picks, so this is a pretty fresh pick coming from our Motley Fool Rule Breakers
service. In fact, it was the end of January when we purchased it. I’m happy to say, yes,
I can even say this, not about many stocks, but it is up. It is up since we purchased
it, (laughs) recommending it on January 27th. The market is down, lots of our stocks are
down. Planet Fitness, you may have seen their marketing,
No Lunks. I like this business. It is a membership subscription business, and it is hitting the
mass market for people who want to work out. Not people who really work out, not those
other people, but people, maybe, more like me. I might include you with me here. But,
those of us who want a simpler, cheaper, lower-key approach to staying fit. So, Planet Fitness,
for example, has a $10 initiation fee. Try that at your local gym. See what it take to
just get started for that membership. Usually, you’re paying more than $10. In fact, Planet
Fitness throws in a t-shirt for you for your $10 initiation fee. And then, speaking of
cheaper fees, $10 a month. Check that out against any competition you see in your local
area. I submit it is going to be much cheaper. But this is a company that is making money
from those price points by being disruptive. No frills. Now, it does mean you don’t get a lot of stuff
at Planet Fitness. You’re not going to get daycare. There are no juice bars. There are
no fitness classes, that I know of, anyway, at Planet Fitness. No racquetball courts or
swimming pools. They’re just keeping it simple with treadmills and workout gear, and creating
a well-lit, friendly space that people can return to and not feel like they have to impress
others with the shape of their body or how strenuously they’re working out. “No Lunks,”
as Planet Fitness says. This is a business that has more than 6 million
members, and my general investing principle that I want to highlight for this one, stock
#4, is that I love subscription businesses. In fact, we have one at The Motley Fool. It’s
a model that I like a lot. If you do a good job by your customers, not only have they
purchased from you, but they will then renew their subscription with you if you do a good
job. If you don’t, if you make bad stock picks or have broken treadmills, then people will
not. They won’t come back the next month or next year. But it’s a wonderful business model
because it replaces its revenue in a much more reliable way than many other businesses
that have to keep going out there and scrabbling around to get growth. So, that’s a happy dynamic
we have here at The Motley Fool, and, certainly, Planet Fitness, a much larger company than
The Motley Fool is one example. But whether you’re talking about Netflix or AOL, back
in the day, or any number of these kinds of regular subscription business models, I favor
them greatly. They’re usually very numerical, they’re very predictable, and it really focuses,
the company that’s doing it, on making sure its customers are pleased, that there’s satisfaction,
and they want to renew for one month or year to the next. So, that’s Planet Fitness. Now, my one cautionary
note about PLNT on the NASDAQ, this is a company, first of all, that we don’t know quite as
well compared to the other companies I’ve talked about. We usually have multi-year associations.
These are long-term investments, and I’m letting you in on them and saying I like them today,
I especially like them watching what the market has gone to some of these. But, we have less
association with Planet Fitness, so I don’t know it as well as some of the others that
I’m talking about. And I’d like to mention in particular a cautionary
note about its low-fee business. So, typically, I favor companies are more of the premium
brands in their industries. Those are usually the companies that have pricing power, that
can raise prices. People don’t really notice if, with Tiffany, if the diamond is a little
bit more next year than it was this year. It’s Tiffany. When Netflix raises prices — it
is in the process of doing so, modestly. I think it’s an incredibly great deal, what
I’m paying Netflix for streaming monthly right now. But, Netflix has that ability, I think,
to raise prices over time. Planet Fitness has really predicated a lot of its business
on the idea that it is the low-cost provider and low-cost player. That’s not often as comfortable
a place for me to feel confident in my investing. But, that said, when you have a disruptor,
and somebody who has fun with their marketing, and I think really appeals to the broadest
group, those of us who don’t work out intensely everyday but still think it’s a good thing,
of course I favor this company.

Leave a Reply

Your email address will not be published. Required fields are marked *