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

• Planet Fitness, Inc. (PLNT:USA) currently trades at historical highs relative to UAFRS-based (Uniform) Earnings, with a 28.4x Uniform P/E. However, even at these levels, the market is pricing in expectations for Uniform ROA to remain near current 103%-106% levels through 2022. 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 their ability to increase capital returns to shareholders through share repurchases and dividends. Additionally, they may have concerns about costs to refinance their debt with the new $1.2bn risk securitization facility, particularly related to the fixed interest rate of the $575mn of four-year notes. Furthermore, they may lack confidence in their ability to sustain elevated corporate store sales, and may be concerned about fading margins. Also, they may lack confidence in their ability to implement technological equipment upgrades in their franchises, and integrate wearable technology with their app
• Although management’s concerns about returning capital to shareholders, capital costs, and corporate store performance suggest the potential for near-term headwinds, market expectations for declining Uniform ROA still appear too bearish. As such, multiple expansion and equity upside continue to be warranted in the long-term