The stock of Planet Fitness (NYSE:PLNT, 30-year Financials) is estimated to be 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 $77.14 per share and the market cap of $6.7 billion, Planet Fitness stock shows every sign of being significantly overvalued. GF Value for Planet Fitness is shown in the chart below.
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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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Planet Fitness has a cash-to-debt ratio of 0.23, which which ranks 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:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Planet Fitness has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $406.6 million and loss of $0.18 a share. Its operating margin is 14.70%, which ranks better than 88% of the companies in Travel & Leisure industry. Overall, the profitability of Planet Fitness is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Planet Fitness over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Planet Fitness's 3-year average revenue growth rate is in the middle range of the companies in Travel & Leisure industry. Planet Fitness's 3-year average EBITDA growth rate is -37.8%, which ranks worse than 88% of the companies in Travel & Leisure industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Planet Fitness's ROIC is 4.77 while its WACC came in at 8.57. The historical ROIC vs WACC comparison of Planet Fitness is shown below:
In closing, the stock of Planet Fitness (NYSE:PLNT, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 88% 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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