Within the final 12 months, the S&P 500 has climbed 17%. That is a better-than-average achieve, traditionally. However some companies have fared significantly better, and buyers ought to take discover of them. Particularly, one consumer-facing firm has effectively outperformed the broader index: Its shares have soared by 42% simply up to now 12 months (as of Feb. 25). Do you have to purchase this development inventory with $1,000 proper now, which might offer you about 11 shares on the present value?
On stable footing
The expansion inventory in query is Planet Health (PLNT 1.28%). Wholesome monetary outcomes for the health club chain in latest quarters have propelled shares greater, however they’re now down 17% from their late January peak, as buyers apparently weren’t happy with the corporate’s steering in its newest report, which it launched Tuesday.
For the fourth quarter, the enterprise reported $340.5 million in income. That was up 19.4% 12 months over 12 months, displaying how Planet Health has efficiently bounced again from the early phases of the pandemic, when all of its areas had been briefly closed. That top-line achieve was fueled by the opening of 86 internet new areas. Similar-store gross sales elevated by 5.5%.
“We proceed to make significant progress executing our strategic imperatives of redefining our model, enhancing member expertise, refining our product and optimizing our format, and accelerating membership openings,” CEO Colleen Keating stated within the earnings press launch.
Planet Health has a lot of development potential. Administration believes that it may ultimately develop its U.S. footprint to five,000 health facilities — almost twice as many as its present rely of two,722.
The overall addressable market domestically seems to be fairly giant. Solely 7% of individuals over 14 years outdated within the U.S. are at the moment Planet Health members.
The corporate’s extraordinarily low cost month-to-month charges ($15 for the lowest-price choice) decrease the barrier to entry for people who find themselves even barely considering enhancing their well being. This places Planet Health in a positive place to profit from a heightened curiosity in wellness.
Operating a franchise mannequin
As talked about, Planet Health at the moment has greater than 2,700 areas in its complete system. This makes it one of many largest health club chains within the U.S.
However solely 10% of these areas are company-owned. The remaining 90% are owned by franchise companions, who put up the capital and tackle the monetary danger when opening a brand new Planet Health. They pay royalty charges and contribute to a nationwide advertising fund. In return, the corporate offers operational steering and advertising help.
A franchise mannequin might be profitable for the dad or mum firm. Planet Health’ asset-light setup principally permits it to develop its revenues with out taking over large capital expenditures. In concept, the revenues it brings in from franchisees needs to be very excessive margin.
The corporate’s long-term profitability ranges show that the mannequin is working as meant. Planet Health registered a median working margin of 26.9% up to now decade. The hope is that, over time, its backside line will develop at a sooner clip than its income.
Valuation issues
Primarily based on its development prospects, earnings, and franchise mannequin, you would possibly assume that it is a good suggestion so as to add Planet Health inventory to your portfolio. If the corporate can execute on its enlargement technique, its earnings might be a lot greater 5 years from now than they’re at this time.
Nevertheless, shares now commerce at a ahead price-to-earnings ratio of 31.4, which isn’t low cost. If buyers need publicity to a robust participant within the health trade, although, and intend to carry the shares for the long run, then the valuation at which they purchase them may not matter as a lot.
Neil Patel and his purchasers don’t have any place in any of the shares talked about. The Motley Idiot has positions in and recommends Planet Health. The Motley Idiot has a disclosure coverage.
