The United States has high obesity rates, which are in part caused by access to fast food, eating highly processed meals, and sedentary lifestyles. However, some trendsetting companies are combating obesity by providing Americans with quality home fitness equipment, mobile work out classes, cheap gym memberships, and dieting plans.
Peloton (NASDAQ:PTON) shares are up more than 30% since its IPO in September 2019. It’s currently trading around $32 and it has upside potential since more people want to have a convenient home workout. It has two main sources of revenue, including selling exercise bikes and treadmills starting at $2,245 each along with its monthly memberships.
The monthly memberships start at $19.49 and enable users to stream live classes ranging from yoga to cycling via the attached Peloton monitors on bikes and treadmills or through iOs, Web, and Android platforms. Peloton mainly ships goods to the U.S., but is starting to add other countries like Canada, U.K., and Germany. Users can access the online classes from anywhere with Wifi. It has 1.4 million community members and over 500,000 paying monthly subscribers.
The monthly membership provides consistent, recurring income, despite the company not being profitable yet. While this company has great upside potential, it still has a negative free cash flow of $248.09 million. Peloton also has minimal debt compared to its assets, which are $0.48 billion and $2.48 billion, respectively. The minimal debt load and manageable debt to equity ratio of 0.30 prove this firm can manage funds successfully.
The holiday season and the new year are times when many consumers gift Peloton equipment to loved ones or buy them for themselves. This company’s quarterly revenue increased to $228 million from $112 million a year ago. It’s also projecting next year’s revenue to be around $1.5 billion and that the subscriber count will increase to 895,000, up from 560,000 at the end of Q1 2019.
Peloton also lost $942 million in market cap on Dec. 4 due to a controversial commercial. Many users considered the ad to be sexist, confusing, and this demonstrates how volatile stocks that have recently IPO’d can be. Investors should consider the fallout from its tone-deaf ad along with Peloton’s lack of profitability, before buying the stock. But it’s razor and blade model and solid debt management make the company look geared up for a positive new year.
2. Planet Fitness
Going to the gym can be a hassle and expensive, with an Equinox membership costing over $200 per month! Planet Fitness (NYSE:PLNT) is a nationwide gym chain that offers high-quality equipment, personalized training, massages, and workout classes starting at just $10 per month. Its premium membership known as PF black, costs $22 per month and provides access to any location, tanning beds, and other perks.
Planet Fitness has over 1,800 locations spread throughout the U.S., Mexico, Canada, Puerto Rico, Australia, the Dominican Republic, and Panama. It currently has over 14 million members worldwide and the customer churn rate is 25% during the first five months. Luckily, this rate drops to around 2% once a membership has been active for at least a year. The membership growth rate is impressive considering there were 12.5 million members in April 2019.
This company’s stock price has increased by a factor of four since its 2015 IPO. Its current price is approximately $75 and the three-year net annualized income growth of 68.14% is much higher than the industry average.
Planet Fitness is profitable and has a net profit margin of 17%. Despite these facts, this stock might be overvalued as it has a high P/E ratio of 55 and the trading price is near its 52-week-high of $81.90. Even though it has a high valuation, its earnings are increasing each year as the diluted EPS climbed from 0.50 in 2016 to 1.32 in 2019.
On Nov. 20, Planet Fitness announced it will approve a share buyback up to $500 million. This buyback program will reward shareholders through a higher percentage of ownership and increased earnings per share.
3. WW International (Formerly Weight Watchers)
Diet is an extremely important factor for a healthy lifestyle as it’s difficult to lose weight while eating highly processed foods. Many people try to count calories on their own, which is easier said than done. WW International (NASDAQ:WW) solves these problems by providing custom weight loss plans, point systems to keep users on track, more than 4,000 healthy recipes, and personalized coaching. Memberships are affordable, ranging from $3.07 to $12.69 per week.
WW has over 4.6 million members throughout the world and its customers are sticking with the process longer. For instance, more than 21% of members are signing up for the six-month plan, compared to 14% in August of 2017. More members are willing to try the program for longer terms, but this isn’t a guarantee against subscriber decline. For instance, subscriber growth starts strong in the first quarter and gradually declines as users lose sight of their New Year’s resolutions. The subscriber growth started at 4.6 million for Q1 2018 and fell to 3.9 million by year-end. Despite this, subscriber count usually fluctuates around 4.6 million.
It’s trading around $41 and had a 2001 IPO opening price of $29.75. WW has a strong three-year net income annualized growth rate of 89.38% and a net profit margin of 9.5%. Despite these positive metrics, it had a rough start earlier this year due to branding issues along with competition from other diet apps like Noom and the keto diet.
Some branding issues include launching an app for kids called Kurbo, which has been controversial. Many critics spoke out against the app saying it promotes eating disorders, low self-esteem, and other mental health issues among youth. WW has had branding problems because it switched from focusing on dieting to overall wellness, losing the household name recognition when it made these drastic moves too quickly.
The keto diet has a wide reach as its global revenue is expected to hit $12.35 billion by 2024. Many companies like Perfect Keto, Sports Research, and Nestle are contributing to this large revenue figure. Noom is another start-up that offers a similar calorie point, color-coded system. Like WW, it also offers coaching and custom training programs, which could be a competitive threat to WW’s growth.
Luckily, it differentiates itself by having partnerships with meditation app Headspace and meal-kit provider Blue Apron. These partnerships will help diversify revenue and prevent it from being commoditized like other weight loss apps.
What should investors think?
Obesity is a problem in the U.S., but more Americans are taking the proper steps like exercising and eating healthier. These innovative companies help them achieve this goal and pump up portfolio returns.
Out of these options, Planet Fitness would be the best choice due to buy today to its quality, affordable gym memberships, diminished member turnover, solid profit margins, and impressive expansion over the last few years. You can exceed both your financial and fitness New Year’s resolutions by investing in these fitness companies.