Does Planet Fitness (NYSE:PLNT) Deserve A Spot On Your Watchlist?

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

In contrast to all that, many investors prefer to focus on companies like Planet Fitness (NYSE:PLNT), which has not only revenues, but also profits. While profit isn’t the sole metric that should be considered when investing, it’s worth recognising businesses that can consistently produce it.

Check out our latest analysis for Planet Fitness

Planet Fitness’ Improving Profits

Planet Fitness has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn’t be a fair assessment of the company’s future. Thus, it makes sense to focus on more recent growth rates, instead. Planet Fitness’ EPS skyrocketed from US$1.25 to US$1.71, in just one year; a result that’s bound to bring a smile to shareholders. That’s a fantastic gain of 37%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. The good news is that Planet Fitness is growing revenues, and EBIT margins improved by 2.5 percentage points to 27%, over the last year. Both of which are great metrics to check off for potential growth.

You can take a look at the company’s revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

While we live in the present moment, there’s little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Planet Fitness?

Are Planet Fitness Insiders Aligned With All Shareholders?

Owing to the size of Planet Fitness, we wouldn’t expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it’s pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they hold US$21m worth of its stock. That’s a lot of money, and no small incentive to work hard. While their ownership only accounts for 0.3%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Is Planet Fitness Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Planet Fitness’ strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Planet Fitness’ continuing strength. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. You still need to take note of risks, for example – Planet Fitness has 2 warning signs we think you should be aware of.

Although Planet Fitness certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com