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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Planet Fitness (NYSE:PLNT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Planet Fitness with the means to add long-term value to shareholders.
Check out our latest analysis for Planet Fitness
Planet Fitness’ Improving Profits
In the last three years Planet Fitness’ earnings per share took off; so much so that it’s a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. Planet Fitness’ EPS shot up from US$1.25 to US$1.71; a result that’s bound to keep shareholders happy. 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. Planet Fitness shareholders can take confidence from the fact that EBIT margins are up from 25% to 27%, and revenue is growing. That’s great to see, on both counts.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don’t exist, you can check our visualization of consensus analyst forecasts for Planet Fitness’ future EPS 100% free.
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. As a matter of fact, their holding is valued at US$18m. This considerable investment should help drive long-term value in the business. Despite being just 0.3% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between US$4.0b and US$12b, like Planet Fitness, the median CEO pay is around US$8.4m.
The Planet Fitness CEO received total compensation of just US$360k in the year to December 2023. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it’s reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Does Planet Fitness Deserve A Spot On Your Watchlist?
You can’t deny that Planet Fitness has grown its earnings per share at a very impressive rate. That’s attractive. If you need more convincing beyond that EPS growth rate, don’t forget about the reasonable remuneration and the high insider ownership. Everyone has their own preferences when it comes to investing but it definitely makes Planet Fitness look rather interesting indeed. We should say that we’ve discovered 2 warning signs for Planet Fitness that you should be aware of before investing here.
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.