In the world of fitness stocks, two notable contenders, Peloton Interactive (PTON:NSD) and Planet Fitness (PLNT:NYE) are vying for investors’ attention. This article examines the current state of these fitness-focused companies and analyses which fitness stock is in better shape for potential investment.
Peloton Interactive (PTON:NSD)
Peloton Interactive is known for its stationary bicycles, indoor rowers, and treadmills equipped with touchscreens streaming live and on-demand fitness classes via subscription services. It has seen its shares take a considerable hit. Year-to-date, (PTON:NSD) have declined by 23%, with a 35% drop over the past year. Despite these declines, a closer look is necessary to gauge the company’s valuation of the fitness stock.
Fitness Stock: Valuation Assessment
The leisure industry typically trades at a price-to-sales (P/S) ratio of 1.1, slightly below its three-year average of 1.7. PTON, currently trading at a P/S of 0.8, falls below industry standards. However, Peloton’s recent challenges, coupled with its lack of profitability, raise valid concerns about its valuation.
Peloton initially thrived during the pandemic but subsequently faced difficulties, notably a bike recall that led to a sequential decline in subscribers. In the most recent earnings report, Peloton recorded a quarter-over-quarter drop of 29,000 subscribers, although the metric still reflected a 4% year-over-year increase.
The company attributed this decline to customers awaiting replacements for their seat posts due to the recall, which has affected over two million bikes since January 2018. The recall incurred $40 Million in expenses during the last quarter, exceeding initial estimates. Moreover, Peloton’s sales saw a downward trend, with an 11% decrease in Fiscal 2022 and a 22% drop in 2023.
Peloton’s financial outlook further indicates challenges ahead. The company anticipates negative free cash flow in the upcoming two quarters, citing seasonality, marketing expenses, and timing of inventory payments.
Price Target for PTON Stock:
The current price of (PTON:NSD) is USD 6.55. With an average price target of USD 9.77, the fitness stock presents a potential upside of 49.20%. PTON has a market CAP of USD 2.34 Billion. Analysts view the stock as bearish and rate it as “Buy”.
Planet Fitness (PLNT:NYE)
Planet Fitness, a major player in the fitness industry, franchises and operates low-cost fitness centers, boasting approximately 2,400 locations. Unlike Peloton, Planet Fitness has exhibited a different trajectory in terms of fitness stock performance and profitability.
Fitness Stock: Valuation Assessment
PLNT currently stands at a P/S of 5.4 and a P/E of 41.7, notably higher than industry averages in both categories. Despite being barely profitable and carrying substantial net debt, Planet Fitness has displayed encouraging financial figures. Revenues surged by 47% year-over-year in 2021 and 64% in 2022, while the net income margin improved from 8% in 2021 to 11.3% in 2022 and further to 12.8% in the past 12 months.
Furthermore, Planet Fitness managed to outperform earnings and revenue estimates in three out of the last four quarters, showcasing strong operational performance.
Is Planet Fitness a Good Stock to Buy?
The current price of (PLNT:NYE) is USD 61.66. With an average price target of USD 81.32, the fitness stock offers a potential upside of 31.88%. The joint analysts’ consensus views the stock as neutral and rates it as “Strong Buy”.
Bearish on PTON And Optimistic on PLNT:
In a head-to-head comparison, Peloton Interactive faces substantial challenges, raising concerns about its current outlook. On the other hand, Planet Fitness demonstrates improving fundamentals and favorable long-term prospects. However, potential investors may consider a wait-and-see approach, awaiting a more opportune entry point at current valuation levels.
Conclusion:
Investing in the fitness stock arena requires a discerning eye, weighing the strengths and weaknesses of each contender. While both Peloton and Planet Fitness have their merits, prudent investors will carefully assess their risk tolerance and long-term objectives before making any investment decisions.
