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.
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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.
