Case Study Finance
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EXAMPLEPAPER2.pdf
Running head: PLANET FITNESS: A FINANCIAL ANALYSIS 1
Planet Fitness: A Financial Analysis
Portland State University
PLANET FITNESS: A FINANCIAL ANALYSIS 2
Abstract
This report will analyze the fitness chain Planet Fitness. It will start with an overview of the
company and their history and performance over the last several years. Special attention is paid
to their marketing strategy as it is one of the key drivers of their recent growth. Following will be
a SWOT analysis detailing the positon of Planet Fitness within the Fitness Club market and how
they can expect to grow over the next five years. Following will be a financial analysis of the
company. This will include income statements, cash flow statements, and ratios designed to test
the overall performance of Planet Fitness as a company. Lastly, a report for the Planet Fitness
stock prices and those of four major competitors will be discussed and compared to show how
each is doing. Relevant news that impacted the stock market prices of Planet Fitness recently will
also be included.
PLANET FITNESS: A FINANCIAL ANALYSIS 3
Table of Contents
Abstract ............................................................................................................................... 2
Planet Fitness: A Financial Analysis ................................................................................... 6
Primary Product .................................................................................................................. 6
Competitive Analysis .......................................................................................................... 6
Strengths ......................................................................................................................... 6
Weaknesses ..................................................................................................................... 7
Opportunities................................................................................................................... 7
Threats............................................................................................................................. 8
Competitors ..................................................................................................................... 8
Economic Environment ...................................................................................................... 8
Regulation ....................................................................................................................... 9
Technology ...................................................................................................................... 9
Financial Statements and Ratios ....................................................................................... 10
Liquidity ........................................................................................................................ 10
Asset Management ........................................................................................................ 10
Debt Management ..........................................................................................................11
Profitability ....................................................................................................................11
Financial Statement Overview ...................................................................................... 12
Stock Analysis ................................................................................................................... 12
PLANET FITNESS: A FINANCIAL ANALYSIS 4
Pricing ........................................................................................................................... 13
Stock Performance ........................................................................................................ 13
Valuation Forecast ......................................................................................................... 14
Stock Analysis Summary .............................................................................................. 14
References ......................................................................................................................... 17
Table of Tables
Table 1 – Liquidity Ratios……………………………………………………………….10
Table 2 – Asset Management Ratios…………………………………………………….11
Table 3 – Debt Management Ratios……………………………………………………..11
Table 4 – Profitability Ratios……………………………………………………………11
Table 5 – Stock Analysis………………………………………………………………..13
PLANET FITNESS: A FINANCIAL ANALYSIS 5
PLANET FITNESS: A FINANCIAL ANALYSIS 6
Planet Fitness: A Financial Analysis
Planet fitness is a gym franchise in the physical fitness industry. It was founded in 1992
and adopted a low-price model to compete with more established gyms to grow membership.
(Planet Fitness Corporation, 2017). The company adopted a “Judgement Free Zone” marketing
strategy to appeal to the average consumer and create a relaxed and friendly image for their
fitness chain. (Planet Fitness Corporation, 2017). Planet Fitness is primarily a subscription based
service providing lower pricing by reducing the number of expensive amenities available in their
gyms. (Planet Fitness Corporation, 2017).
Primary Product
Planet Fitness provides access to a gym facility on a subscription basis. According to the
market strategy outlined in their 10-K filing, they have chosen to focus on value rather than
features to attract the average consumer. This focus allows them to limit costs and lower their
price point to pull customers from more established competitors. The company also offers free
fitness instruction to members from their staff trainers at all membership tiers.
An additional aspect of the Planet Fitness product is the “Community Atmosphere”
(Planet Fitness Corporation, 2017) intended to reduce the intimidation factor they feel prevents
the casual consumer from joining a gym. They believe this allows them to target a wider pool of
members than competitors in the fitness club industry.
Competitive Analysis1
Strengths
Planet Fitness has a very successful marketing campaign that has given them strong
brand recognition as different from their competitors. Their “Judgement Free Zone” has been
well received and driven strong growth over the past several years. Combined with the use of
PLANET FITNESS: A FINANCIAL ANALYSIS 7
franchising to limit their own financial risk, Planet Fitness has increased their foothold from 606
stores in December of 2012 to 1,313 stores in December of 2016. This success positions them
well to continue growing for the immediate future.
The design of the Planet Fitness club is streamlined and relatively inexpensive (Planet
Fitness Corporation, 2017). This allows them to grow their foothold with a lower financial
commitment than competing fitness clubs. They are also able to take advantage of existing
structures vacated by large retail stores instead of building an entire new structure from the
ground up.
Weaknesses
Their bargain pricing and low amenity strategy closes Planet Fitness off from the
consumers that are willing to pay the higher subscription fees competing fitness clubs are able to
charge. The “No Lunks” portion of their marketing strategy has also alienated this segment of the
market. (McGeyna, 2011).
During growth, Planet Fitness has taken on a significant debt load. If they experience any
significant reduction in revenue, they may not be able to meet the demands of their debt (Planet
Fitness Corporation, 2017).
Opportunities
The health and fitness market is projected to grow 2.9% over the next five years (Cohen,
2017). This trend should make it a good time to continue expansion and add new clubs to their
footprint. Additionally, Planet Fitness is still small enough to grow into new market areas without
negatively impacting existing club locations.
The streamlined club design allows Planet fitness to take advantage of existing buildings
that have been vacated by closed businesses. This allows them to expand without resorting to
PLANET FITNESS: A FINANCIAL ANALYSIS 8
much more expensive new construction. Leveraging this advantage will make continued growth
more inexpensive to achieve.
Threats
Stagnated wage growth has resulted in American workers spending more time at work. If
this trend continues, there may not be time for them to spend at the gym. This could impact
growth or cause a loss of current subscription memberships.
Any economic downturn would impact consumer discretionary spending. The fitness
club sector is often highly impacted in that case.
Planet Fitness relies on electronic payment technology to collect subscription payments,
their primary revenue stream. If there is any sustained interruption to this technology it could
negatively impact their cash flows.
Brand value is extremely important to Planet Fitness as a company. If any Franchise were
to act in a way that damages brand value this could have significant consequences to the entire
company.
Competitors
Competitors include Anytime Fitness, Snap Fitness, Gold’s Gym, Curves Fitness, and
others. Planet fitness currently holds 17.4 % of the market behind Anytime Fitness with 35.9 %
of the market (Cohen, 2017).
Economic Environment
The Ibisworld industry summary describes the Gym and Fitness franchises industry as a
growing industry. The average growth rate of the industry is expected to be 2.9% over the next 5
years. Although competition is high, barriers to entry are high which should keep competition
from increasing dramatically during this timeframe (Cohen, 2017).
PLANET FITNESS: A FINANCIAL ANALYSIS 9
Health campaigns have increased consumer awareness of the benefits of exercise on their
health, which should continue to contribute to growth for the industry. Also, in response to rising
healthcare cost from obesity and preventable illnesses like type 2 diabetes, many companies are
partnering with fitness clubs to provide memberships to their employees (Cohen, 2017). This
trend is another growth driver that is likely to continue in the future.
Regulation
The health and fitness club industry is lightly regulated and this is likely to continue to be
the case (Cohen, 2017). This should assist in keeping costs down from any regulatory concerns.
The one exception being tanning services. Increased awareness of the potential health risks
associated with tanning has the potential to lead to future regulation that may either increase
costs or reduce the viability of tanning services as a revenue stream. (Planet Fitness Corporation,
2017)
Technology
The increasing popularity of fitness apps and devices is impacting how people use
services in this industry. (Cohen, 2017) Although this may lead to increases in membership, the
availability of such devices may also reduce the willingness of consumers to purchase sessions
with fitness trainers as they have training information available to them through the use of these
technologies.
Changes in payment processing technology and the security concerns associated with
handling large amounts of payment data are not expected to impact costs in a large way (Cohen,
2017)
PLANET FITNESS: A FINANCIAL ANALYSIS 10
Planet Fitness is positioned well within the fitness club market to continue to grow
market share and revenue. So long as their strategy continues to work well and attract a broad
range of consumers, they seem to be on the right track for success.
Financial Statements and Ratios
The next stage of analysis includes a discussion of Planet Fitness’s financial
health based on analysis of their financial documents compared to industry averages. As data is
analyzed, the overall health and position of Planet Fitness within its industry should be relatively
clear.
Liquidity
Planet Fitness has a slightly negative trend in liquidity ratios from 2014 – 2016.
According to CSIMarket.com, industry average for current ratio is at 1.22. (CSIMarket, 2017).
This indicates that Planet Fitness is performing slightly worse than the industry average but is
still in good shape. Planet fitness also has a negative cash conversion cycle, which indicates good
practices in paying accounts.
2014 2015 Change 2016 Change
Current Ratio 1.24 1.10 -0.1104 1.10 -0.005 Quick Ratio 1.19 1.03 -0.1312 1.07 0.0403
Cash Conversion Cycle -61.19 -41.30 0.3250 -53.76 -0.3015 Table 1 - Liquidity Ratios
Asset Management
Planet fitness has a strong inventory turnover ratio 209.9 compared to the industry
average of 18.21. (CSIMarket, 2017). This indicates a much higher rate of sales as compared to
the industry, which makes sense when considered in the context of the Planet Fitness current
growth rate. The asset turnover ratio of 0.47 (2016 is an outlier and likely not good data in table
2) or 0.46 according to CSIMarket is slightly lower than the average in this sector of 0.49.
PLANET FITNESS: A FINANCIAL ANALYSIS 11
(CSIMarket, 2017). While comparable, this indicates that Planet fitness is getting slightly less
than their sector out of their assets.
2014 2015 Change 2016 Change
Inventory Turnover Ratio 92.89 72.53 -0.2191 209.90 1.8938 Days Inventory Outstanding (DIO)
10.96 14.66 0.3372 5.38 -0.6331
Days Sales Outstanding (DSO) 25.15 21.07 -0.1622 25.93 0.2309 Total Asset Turnover (TAT) 0.46 0.47 0.0172 377 797.9321
Table 2 – Asset Management Ratios
Debt Management
The ratios found at CSIMarket will be given more weight than in this section than those
found in Table 3. Planet Fitness has shown an increasing debt load over time as shown by the
debt ratio from 2014 to 2016 in table 3. This is likely a result of taking on additional debt to
expand. Interest coverage has been increasing over the same time period, indicating that the
company is managing its debt well and is able to pay its bills. CSIMarket has Planet Fitness
listed as having an interest coverage ratio of 5.58 compared to 8.94 in their sector. While Planet
Fitness is in good health in this area, they are not in as good of shape as their sector overall.
2014 2015 Change 2016 Change
Debt Ratio 75% 100% 0.3392 121% 0.2126 Debt to Equity 297% -64839% -219.61% -566% 0.9913
Days Payables Outstanding (DPO) 97.30 77.03 -0.2083 85.07 0.1044 Interest Coverage 1.77 1.93 0.0911 3.31 0.7211
Table 3 – Debt Management Ratios
Profitability
Table 4 also has likely issues with data. Planet fitness has a strong Gross Margin at
61.39% according to CSIMarket, 68% in Table 4. This puts Planet Fitness in line with or slightly
below the average in their sector of 68.19% (CSIMarket, 2017). The return on assets in table 4
shows growth over time, but is lower than that found on CSIMarket of 8.59% which is double
PLANET FITNESS: A FINANCIAL ANALYSIS 12
the sector average of 4.32%. This indicates that Planet Fitness is operating more efficiently than
their sector on the average per asset, but not quite as well in margin.
2014 2015 Change 2016 Change
Profit Margin on Sales 0% 1% -0.2191 6% 3.7460 Gross Margin 64% 66% 0.0236 68% 0.03277
Basic Earning Power 6% 7% 0.0579 9% 0.3277 Return on Assets (ROA) 0% 1% 2% 2.7918 Return on Equity (ROE) 0% -369% -10% 0.9727
Table 4 – Profitability Ratios
Financial Statement Overview
According to the financial statements retrieved from the SEC website, Planet Fitness has
shown strong growth in assets over the last three years. Revenues have also shown strong gains
in the same time period. Net income to the company in 2016 is about half of what it was in 2014,
likely due to increased profit sharing and dividends owed to stock holders since the Planet
Fitness IPO in 2014. Planet Fitness has also taken on a large debt load that it is managing well
and has sufficient cash on hand to pay about half of their current liabilities for 2016.
Planet Fitness is in stable financial position going into 2017 with the company trending
on a similar path to the industry on average. With strong profit margins and responsible
management of debt, Planet Fitness doesn’t show any red flags for financial stability.
Stock Analysis
Using the average closing price from Nasdaq results combined with Earnings Per Share
(EPS) and Book Value Per Share (BPS) results from Morningstar, this section discusses stock
results for Planet Fitness. Projection values are not particularly strong since the company has not
been public long enough for a full five-year average to be available. This results in some
expected volatility in the numbers due to the shorter term of the sample size.
PLANET FITNESS: A FINANCIAL ANALYSIS 13
Table 2 contains the results of analysis for the years 2015 through 2017. Only 2016
contains a full year of stock data for analysis. Planet Fitness shows growth with respect to stock
price and EPS in the short time that data is available to analyze.
Year Average Close EPS Book Per Share P/E Ratio
2015 16.6 0.11 -0.19 150.9090909
2016 18.27 0.5 0.1 36.54
2017 20.34 0.55 -1.35 36.98181818
Table 5 – Stock Analysis
Pricing
The Planet Fitness average closing price has been steadily increasing since the company
went public. This indicates that the company is being well received by market analysts and
investors. EPS for Planet fitness is steady at around $0.55 which is indicative of recent growth,
but there is not enough data to build a good trend. The industry overall is expected to maintain
steady growth, so it is probable that Planet Fitness will continue to be a profitable stock to own
or buy into. Book value per share is the only concern; its negative value reflecting the amount of
debt taken on by Planet Fitness to fund their growth strategy.
Stock Performance
Planet Fitness P/E ratio of around 37 is significantly higher than the industry average of
27.7. This value indicates that Planet Fitness is either expected to grow much more than the
industry or is overvalued. Current analyst expectations are that Planet Fitness will continue to
grow for the next several years, but taper off as the industry reaches saturation. Since book value
has been negative due to the company’s debt load, return on equity is still negative for the time
being.
PLANET FITNESS: A FINANCIAL ANALYSIS 14
Valuation Forecast
Complete and discuss a value forecast based on earnings and based on dividends. (3
paragraphs – covering each of the following bullets)
Price forecasting for 2018 expects Planet fitness valuation per share to be between
$50.40 and $76.33.
The book value of Planet Express is expected to still be negative due to debt load.
The small sample size of data for Planet Fitness makes a prediction of overvalued
vs undervalued difficult to assign. Current market consensus seems to put it at
slightly undervalued to fairly valued.
Stock Analysis Summary
Planet Fitness stock is trending upward for now with the only concern being the debt load
that limits the book value. Earnings are still strong and the stock value is trending upward. With
the P/E ratio higher than the industry average, Planet Fitness appears to be expecting stronger
growth than other businesses in its sector.
Since earning per share are trending upward and growth for Planet Fitness seems to be
continuing, it would seem to be an undervalued stock. The uncertainty here being that any
downturn in the industry is likely to impact Planet Fitness particularly hard based on their
relatively high debt load. As a growing company, the Planet Fitness stock is a good bet for
continued growth.
Comparative Analysis
This will be the final concluding section of the paper. This section should incorporate
discussion on the prior four sections including: company overview, strategic analysis, financial
analysis and stock analysis. This section should be no more than 3 pages.
PLANET FITNESS: A FINANCIAL ANALYSIS 15
Overall Company Performance
Planet fitness stands out for strong Marketing \over the last several years. Their chosen
message and appeal is being well received by their customer base. This has resulted in strong
growth that has allowed the company to be in a strong position in their market. Growth is
currently expected to continue and Planet Fitness will be in good position moving forward so
long as they continue to manage their debt well.
Overall Industry Performance
The health and fitness industry overall is doing relatively well, but remains vulnerable to
economic downturn. High barriers to entry make it a difficult industry to break into and other
competitors in the market are losing market share to Planet Fitness.
Overall Market Perforamnce
The market as a whole has been in steady growth for the last five years. (NASDAQ,
2017). Planet fitness has been keeping up with that trend. So long as the market remains healthy
and continues to grow; the health and fitness industry and Planet Fitness should keep up current
trends.
Example Investment
Assuming an investor with 25 years to retirement and a $100,000 investment available;
comparing an investment in Planet Fitness vs a savings account with 5% annual return. Based on
the investor’s distance from retirement, they should consider being more risk tolerant in order to
seek out larger gains in their portfolio.
Based on the analysis in this paper, Planet Fitness is in good position to continue growth
and increase in value. CNN Money has the median growth rate for Planet Fitness at 15% which
would seem about right and follows with historical data for the company. (CNN, 2017)An
PLANET FITNESS: A FINANCIAL ANALYSIS 16
investment in Planet Fitness common stock is likely to return between 10% and 20% annually.
Taking the 15% median growth prediction, an investor can anticipate a $15,000 return on a
$100,000 investment. If the median growth rate of 15% holds over 5 years, the investment would
be worth about $201,135. The investor could conceivably double their investment in five years.
If the investor takes the risk-free option of putting $100,000 in a savings account for five
years, the investment would be worth about $127,000. While the stock market has higher risk,
the return is much greater. Based on the analysis provided in this paper, an investment in Planet
Fitness would have a much higher return over five years.
Conclusion
This investment analysis covered the overall position and potential for future growth for
Planet Fitness. The company appears to be in good market position, is managed well, and has
sufficient financial resources to continue growth and pay their financial liabilities. An investment
in the company would be a good idea; the company continues to stand out and grow in its
industry.
The biggest vulnerability Planet Fitness faces is a major market downturn. In that case,
the company would likely not be able to continue growing in the same way that has been
allowing it to be successful. Also, any major damage done to its brand would be difficult for the
company to overcome. Especially if that damage alienated the demographic the company has
been targeting so far. It is not possible to know if the company will face these challenges any
time soon, but based on what is known now Planet Fitness is in good shape.
PLANET FITNESS: A FINANCIAL ANALYSIS 17
References
CNN. (2017, June 12). CNN Money. Retrieved June 12, 2017
Cohen, A. (2017, January). Gym and Fitness Franchises in the US. Retrieved from
IBISworld.com.
CSIMarket. (2017, May 3). Planet Fitness Financial Strength Comparisons. Retrieved from
CSIMarket.com: http://csimarket.com/stocks/PLNT-Financial-Strength-
Comparisons.html
McGeyna, M. (2011, June). Faulty Judgement by Planet Fitness. PR Week [US], p. 8.
NASDAQ. (2017, June 5). NASDAQ. Retrieved from nasdaq.com: www.nasdaq.com
Planet Fitness Corporation. (2017, March 6). Planet Fitness Investors Financial Information.
Retrieved from Planet Fitness Investor Relations.
