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Finance

PTON: Better Buy: Peloton vs. Planet Fitness

Peloton Interactive, Inc. (PTON) and Planet Fitness, Inc. (PLNT) are two well-known fitness operators in the United States. Headquartered in New York, PTON provides interactive and connected fitness products, such as the Peloton Bike and the Peloton Tread. Headquartered in Hampton, New Hampshire, PLNT operates through three segments: Franchise, Corporate-Owned Stores, and Equipment.

The coronavirus pandemic opened the eyes of many more people to the importance of personal health and fitness.  There has been a growing awareness generally that exercise and the maintenance of personal wellbeing is a strong factor in fighting the virus. This should add considerable impetus to the fitness industry. In addition, with businesses slowly starting to normalize as the COVID-19 vaccine is distributed, leading fitness operators, such as PTON and PLNT, should continue to thrive because they have a plethora of new fitness products to offer.

While PTON has returned 356.1% over the past nine months, PLNT gained 17.8%. In terms of past six-month performance, PTON is the clear winner with 127.6% gains versus PLNT’s 34.6% returns. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

In December, PTON announced that it had signed an agreement to acquire Precor, one of the largest global commercial fitness equipment providers. The acquisition should help PTON lead the global connected fitness market in terms of innovation and scale.

Also in December, the company announced the addition of 103,750 square feet of space to its Peloton Plano Campus. This should allow it to bring together key leadership and managerial roles to strengthen its customer support and technology expertise in the region.

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This month, PLNT announced the appointment of Bernard Acoca, Chief Executive Officer and President for El Pollo Loco, and Christopher Tanco, Executive Vice President and Chief Operating Officer for 7–Eleven, to its Board of Directors. Together they complement PLNT’s existing board of director’s skills and expertise because they bring decades of leadership experience in key areas of business.

The company promoted Bill Bode to Chief Operations Officer in December. He had served as Senior Vice President of Franchise Operations since  joining PLNT in 2016. His extensive experience in franchising and operations should further strengthen and elevate the company’s leadership team as the company  continues to expand  it  brand across the country and internationally.

Recent Financial Results

In the fiscal first quarter ended September 30, 2020, PTON’s revenue has increased 232% year-over-year to $757.90 million. Its gross profit rose 213% from the prior-year quarter to $328.70 million. Its cash, cash equivalents, and restricted cash flow have increased 4% from the year-ago value to $1.43 million over this period.

PLNT’s revenue has decreased 36.8% year-over-year to $105.4 million in the third quarter ended September 30, 2020, primarily because of temporary store closures related to COVID-19 and reduced membership levels. The company reported a net loss of $3.3 million in the third quarter of 2020 compared to net income of $29.7 million in the prior year period. PLNT opened 29 new Planet Fitness stores during this period, bringing its system-wide total stores to 2,086 as of September 30, 2020.

Here PTON is in an advantageous position.

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Expected Financial Performance

Analysts expect PTON’s revenue to increase 116.5% in the current year and 34% next year. PTON’s EPS is expected to grow 218.8% in the current year.

Analysts expect PLNT’s revenue to increase 63.9% in the current year. The company’s EPS is expected to grow 1522.2% in the current year.

Profitability      

PTON’s trailing-12-month revenue is more than five times PLNT’s. But PLNT is more profitable with a gross profit margin of 55.3% versus PTON’s 45%.

However, PTON’s levered free cash flow of 19.9% compares favorably with PLNT’s negative returns.

Valuation

In terms of trailing-12-month EV/Sales, PLNT is currently trading at 17.88x, 2.8% more expensive than PTON, which is currently trading at 17.40x. Though PLNT is less expensive in terms of trailing-12-month price/sales (13.86x versus 17.45x), its trailing-12-month price/cash flow of 121.65x is 119.4% higher than PTON’s 55.45x.

Thus, PTON is the more affordable stock here.

POWR Ratings

Both PTON and PLNT are rated Buy in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for PTON and PLNT:

PTON has an A for Trade Grade and Industry Rank, and a B for Buy & Hold Grade and Peer Grade. In the 67-stock Consumer Goods industry, it is ranked #17.

PLNT has a B for Trade Grade, Buy & Hold Grade and Industry Rank, and a D for Peer Grade. It is ranked #12 of 34 stocks in the Athletics & Recreation industry.

The Winner

While both PTON and PLNT are good investment bets, PTON appears to be a better choice considering the factors discussed here. It is a cheaper investment option to benefit from the fitness industry’s growth. Also, the company’s strong financials should help it outperform PLNT.

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PTON shares were trading at $147.12 per share on Friday morning, up $1.29 (+0.88%). Year-to-date, PTON has declined -3.03%, versus a 0.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…

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