Planet Fitness vs. Life Time: Which Gym Stock is a Better Buy?

The fitness industry, especially brick-and-mortar gyms, has faced the biggest disruption in its history due to the COVID-19 pandemic. Twenty-two percent of Gyms and fitness studios in the U.S. were permanently closed to prevent the spread of coronavirus, translating into a loss of $29.2 billion in industry revenue, the National Health & Fitness Alliance (NHFA) reports.

As the pandemic fades and the global economy recovers, the fitness industry could present a great investment opportunity. According to Verified Market Research, the global health and fitness club market is expected to reach $136.59 Billion, growing at a CAGR of 7.61% between 2021 and 2028. This growth is projected to be fueled by the higher inclination toward health clubs for fitness. 

Keeping that in mind, today, I’m going to analyze and compare two gym stocks, Planet Fitness (PLNT) and Life Time Group Holdings (LTH). Founded in 1992, Planet Fitness, together with its subsidiaries, owns and franchises a chain of low-cost gyms in the U.S. and worldwide. YTD, Planet Fitness stock has gained about 4.8%. Headquartered in Chanhassen, Minnesota, Life Time owns over 150 high-end fitness centers in a resort-like environment in the U.S. and Canada. Life Time has recently become public, presently trading around 8.7% above its IPO price. 

Recent‌ ‌Developments‌ ‌

On October 21st, Planet Fitness partnered up with Huge, a global experience agency, to speed up its digital strategy by supporting the evolution of its mobile app, website, and in-club digital experience. The company believes that it should cause higher customer retention and continue to drive its "bricks with clicks" growth strategy and hybrid approach to fitness. 

On November 11th, Life Time Group Holdings announced the opening of a 126,000 square-foot luxury athletic resort in Chicago in early 2022. In addition, the company will open a 39,000 square-foot coworking space, known as Life Time Work, designed around a healthy work-life. Athletic resort and Life Time Work memberships start at $229 per month and $579, respectively. As a result, the company should experience an increase in its recurring revenue figures. 

Financial Overview & Analysts Estimates 

Planet Fitness' revenue increased 46.4% year-over-year to $154.26 million for its fiscal third quarter, ended September 30th, 2021. This figure exceeded the Wall Street consensus by $19.47 million. 

The company’s Adjusted EBITDA grew 94.5% year-over-year to $62.2 million, while its net income came in at $18.63 million, representing a significant improvement over a loss of $3.28 million in the prior-year period. As a result, its non-GAAP EPS was $0.25, beating analysts' consensus by $0.06. 

The company’s EPS for the fourth quarter (ending December 31st, 2021) is expected to increase by 42.7% year-over-year to $0.24. Its top line for the next quarter is projected to rise 29.30% year-over-year to $172.98 million.

Life Time Group’s total revenue increased 66% year-over-year to $385 million for its fiscal third quarter, which ended September 30th, 2021. It is important to note that the company has not been generating profits yet. However, it is moving in the right direction as its Q3 operating loss fell to $17.55 million versus an operating loss of $90.8 million in a year-ago quarter. Also, its net loss stood 106% lower year-over-year at $45.44 million, translating to GAAP loss per share of $0.36, down 77.8% year-over-year.

Analysts expect LTH’s EPS to stand at ($0.41) for its current quarter. In addition, analysts plan to see Life Time Group's fourth-quarter revenues at $356.56 million. 

Valuation & Profitability 

In terms of forward Price/Sales, PLNT is currently trading at 11.39x, which is 405.3% higher than LTH, which is currently trading at 2.81x. However, LTH's Forward  EV/EBITDA of 105.45x is significantly higher than PLNT ’s 37.20x. 

Let’s take a look at the margins profile as well. PLNT's trailing-12-month gross profit margin of 61.28% is 71.22% higher than the 35.79% industry median. Its gross profit margin also tops LTH's respective figure of 35.07%. Moreover, the company’s levered free cash flow margin and net income margin of 30.28% and 9.49%, respectively, compare favorably with LTH's negative values.

The Bottom Line

While both PLNT and LTH should benefit from the fitness industry’s growth, I believe that Planet Fitness appears to be a better investment. As discussed above, PLNT's overall financials look more attractive than LTH at the moment. 

PLNT shares were trading at $81.36 per share on Thursday morning, up $2.65 (+3.37%). Year-to-date, PLNT has gained 4.80%, versus a 23.12% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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