PLNT – Expectations for declining profitability are too bearish, implying that, despite the potential for near-term headwinds, long-term equity upside remains warranted

• • • Planet Fitness (PLNT:USA)currently trades at historical highs relative to UAFRS-based (Uniform) Earnings, with a 23.1x Uniform P/E. However, even at these levels, the market has bearish expectations for the firm, and although negative management sentiment suggests the potential for near-term headwinds, market expectations are overly bearish in the context of the firm’s historical performance and strong fundamental tailwinds, implying long-term equity upside remains warranted
    • Specifically, management may lack confidence in the sustainability of same-store sales growth at current levels going forward, and may be concerned about their ability to drive growth through their focus on data and technology, driven by concerns about their ability to use these tools to better the experiences of their customers. Additionally, they may lack confidence in the sustainability of record-level store openings, and may have concerns about the sustainability of royalty revenue improvements. Although management’s concerns about growth, technology, and store openings suggest the potential for near-term headwinds, market expectations for declining Uniform ROA still appear too bearish. Should the firm simply maintain Uniform ROA at current levels, multiple expansion and equity upside would be warranted