Planet Fitness (PLNT) has an unsustainable business model and is highly leveraged. Increased competition from similar gyms and other kinds of fitness centers will push this stock lower in the short term. Investors would be wise to sell short shares of this company.
The fitness-center industry is a highly competitive and fragmented one. Planet Fitness has marketed its gyms as a "Judgement Free Zone" in an effort to attract a wide variety of members, not just those with ripped biceps and six-pack abs. The company has also touted its low-price model.
Other gyms, however, including Crunch and Retrofitness, are using a low-price model to attract new customers. That increased competition is likely to be a major threat to Planet Fitness' business.
The fitness-center model has been rapidly changing, too. More traditional gyms featuring cardio and weight equipment have been challenged by CrossFit "boxes," SoulCycle and spinning locations and boot camps -- all of which don't require the type of upfront and fixed costs as a traditional gym. Niche fitness products and programs have done extremely well in recent years, and while the names of these fitness fads may change, their threat to the traditional gym model will not.
Planet Fitness has frequently mentioned a goal of having 4,000 gyms in the U.S. This figure is unrealistic when you think about the numbers. If a typical Planet Fitness gym has approximately 6,600 members, 4,000 gyms would have more than 26 million members.
To put that in perspective, the International Health, Racquet & Sportsclub Association states that there are currently 34,460 clubs across the U.S. serving approximately 54 million members. Even assuming that not every gym-goer is in Planet Fitness' target audience, it is not realistic for Planet Fitness to believe it can attract such a large percentage of existing gym attendees.