Better Stock to Buy Now: Lululemon or Planet Fitness?

Shares of Planet Fitness and Lululemon Athletica are down over 30% from all-time highs, allowing you to buy the dip.

| More on:
A worker drinks out of a mug in an office.

Source: Getty Images

Shares of Planet Fitness (NYSE:PLNT) and Lululemon (NASDAQ:LULU) have crushed broader market returns since their IPOs, or initial public offerings. Lululemon stock went public in July 2007 and has since returned over 2,000%. Comparatively, shares of Planet Fitness have more than tripled since its IPO in August 2015. As past returns don’t matter much to future investors, let’s see which growth stock is a better buy right now.

Is Planet Fitness stock a buy in May 2024?

Valued at US$5.6 billion by market cap, Planet Fitness operates and franchises fitness centers. In the first quarter (Q1) of 2024, the company increased sales by 11.6% year over year to US$248 million, while system-wide sales rose 6.2% to US$1.2 billion. Planet Fitness reported an adjusted net income of US$47.3 million or US$0.53 per share, compared to US$36.4 million or US$0.41 per share in the year-ago period. Further, its earnings before interest, taxes, depreciation, and amortization rose by almost 20% to US$106.3 million.

Planet Fitness opened 25 new stores in Q1 and ended the March quarter with 2,599 total system-wide stores. It aims to end 2024 with at least 140 new stores, which should drive top-line growth and earnings for the company going forward.

Planet Fitness generates enough profits to meet service its debt as interest expenses are forecast at US$70 million in 2024. With US$486.4 million in cash, it has the liquidity to invest in organic growth and acquisitions.

Planet Fitness has been quite successful in the crowded fitness industry. It owns just 10% of the total locations, allowing Planet Fitness to benefit from high-margin franchise fees.

Despite its outsized gains, PLNT stock trades 34% below all-time highs, allowing you to buy the dip as the company continues to enter new markets and increase its customer base.

Priced at 26 times forward earnings, PLNT is not too expensive, given that its adjusted earnings are forecast to expand from US$2.24 per share in 2023 to US$2.43 per share in 2024 and US$2.8 per share in 2025.

Is Lululemon stock undervalued?

Valued at US$38 billion by market cap, Lululemonstock is down 40% from record levels amid slower consumer spending and rising costs. In fiscal Q4 of 2023 (ended in April), Lululemon grew its sales by just 9% in the U.S., which is the company’s core market, slower than 12% in the previous quarter.

While Lululemon’s sales are decelerating south of the border, its international sales were up 56% year over year. This indicates that the Lululemon brand is resonating with consumers even outside the core markets. Currently, international sales account for just 20% of Lululemon’s sales, providing it with enough runway for long-term growth.

Lululemon continues to expand its product portfolio, which should help it gain traction in several other categories, such as men’s apparel and kids’ wear.

While sales growth has slowed, the top line increased by 20% year over year to US$10.76 billion in fiscal 2023. Further, its gross margins improved by 300 basis points to 58% while its operating margin stood at 23%, up from 22% in fiscal 2022.

Priced at 21.4 times forward earnings, LULU stock trades at a discount of 45% to consensus price target estimates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

More on Investing

Target. Stand out from the crowd
Stocks for Beginners

2 No-Brainer Stocks to Buy With $7,000

Got some cash to fill up your TFSA? Here are two stocks that look like good buys on the recent…

Read more »

Path to retirement

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Retirement

Future retirees can use the RRSP to save for retirement and be financially secure with the help of a Dividend…

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies

2 Utility Stocks That Could Help Energize the AI Boom

Canadian Utilities (TSX:CU) and another great utility stock could indirectly benefit from the rise of AI.

Read more »

top TSX stocks to buy
Stocks for Beginners

3 Stocks That Can Help You to Get Richer in 2024

These three stocks have already proven their worth this year, but are set to continue climbing in 2024 and even…

Read more »

Woman has an idea
Dividend Stocks

3 No-Brainer Best Dividend Stocks in Canada to Buy With $500 Right Now

Are you craving more cash flow? $500 in one of these best dividend stocks in Canada might deliver a slice…

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

5 Stocks Whose Dividends Just Keep Growing

Stocks like Enbridge and Fortis are growing their dividends for decades, and returning higher cash to their shareholders.

Read more »

Man considering whether to sell or buy
Tech Stocks

BlackBerry Stock Is Down 20%: Buy the Dip or Call It a Pass?

BlackBerry stock has seen a series of 20% monthly dips since December 2023. Should you buy the dip or call…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset

3 High-Flying TSX Stocks That Could Keep On Climbing

These high-flying TSX growth stocks certainly have the potential for more upside over the long term, if secular growth trends…

Read more »