Investors are often guided by the idea of discovering ‘the next big thing’, even if that means buying ‘story stocks’ without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, ‘Long shots almost never pay off.’ Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.
If this kind of company isn’t your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Planet Fitness (NYSE:PLNT). While this doesn’t necessarily speak to whether it’s undervalued, the profitability of the business is enough to warrant some appreciation – especially if its growing.
See our latest analysis for Planet Fitness
How Fast Is Planet Fitness Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so you’d expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. To the delight of shareholders, Planet Fitness has achieved impressive annual EPS growth of 50%, compound, over the last three years. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. While we note Planet Fitness achieved similar EBIT margins to last year, revenue grew by a solid 40% to US$970m. That’s encouraging news for the company!
The chart below shows how the company’s bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
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?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. That’s because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don’t know the exact thinking behind their acquisitions.
Insider selling of Planet Fitness shares was insignificant compared to the one buyer, over the last twelve months. Specifically the CEO & Director, Christopher Rondeau, spent US$650k, paying about US$64.99 per share. That certainly piques our interest.
Along with the insider buying, another encouraging sign for Planet Fitness is that insiders, as a group, have a considerable shareholding. To be specific, they have US$13m worth of shares. That’s a lot of money, and no small incentive to work hard. Even though that’s only about 0.2% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.
While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That’s because Planet Fitness’ CEO, Chris Rondeau, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like Planet Fitness with market caps between US$4.0b and US$12b is about US$8.0m.
The Planet Fitness CEO received US$5.6m in compensation for the year ending December 2022. That is actually below the median for CEO’s of similarly sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Is Planet Fitness Worth Keeping An Eye On?
Planet Fitness’ earnings per share have been soaring, with growth rates sky high. The cherry on top is that insiders own a bunch of shares, and one has been buying more. These factors seem to indicate the company’s potential and that it has reached an inflection point. We’d suggest Planet Fitness belongs near the top of your watchlist. Before you take the next step you should know about the 2 warning signs for Planet Fitness that we have uncovered.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Planet Fitness, you’ll probably love this free list of growing companies that insiders are buying.
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.