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09

August, 2018

Planet Fitness Earnings Preview — Looking Strong! (but is it enough?)

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Summary:

Planet Fitness ($PLNT) reports earnings tonight, and analysts are expecting the company to report a 3rd consecutive quarter of accelerating earnings.

To see if this is realistic, we look at LikeFolio Purchase Intent data, which measures consumer mentions on social media that they are joining a Planet Fitness membership program:

There are three key takeaways from this data:

  • Planet Fitness is an extremely seasonal business.  Those spikes you see in purchase intent are all due to new year’s resolutions!  As a result, the first quarter report is by far the most important announcement of the year for the company.  Tonight they report 2nd quarter numbers, which are much less important.
  • LikeFolio Purchase Intent data lines up with past reported revenues.  Planet Fitness sees year over year growth consistently.  This is shown in the LikeFolio data as we see consecutive higher highs, as well as in the revenue reports that the company has made to Wall St.  In other words, LikeFolio data is pretty predictive of revenue for this stock.
  • Planet Fitness likely had a very good 2nd quarter.  While the pullback in purchase intent mentions over the past few months might look scary, it’s important to keep it in the perspective of the seasonality of the business.  Because new year’s resolutions are so enormous, there will always be a drop in new signups for the company in the 2nd quarter.  What’s important here is to recognize that the 2018 summer dip is significantly higher than the 2016 and 2017 summer dips — indicating the company was very successful at signing up new members in Q2.

Considering a trade

While all of the above is very positive for Planet Fitness, it needs to be put inside the context of the stock being right at all-time highs.  Wall St. is already expecting a very good quarter.  

The setup here is very similar to Weight Watchers, which produced one of the most disappointing trades we’ve had in quite some time.  The data was solid, and we expected the company to post really good results.  In fact, they did — beating Wall St earnings and revenue estimates AND raising guidance for the remainder of the year.  Great, right?  Well… unfortunately the stock sold off 10% the following day for reasons that are still baffling most of us.  Bottom line:  When Wall St. expectations are extremely high, it could take an enormous beat to not disappoint them.

For PLNT, there is reason to be concerned that the same thing could happen. That’s why we would suggest using options to enter a defined-risk position on the company.  We’ll send some examples out to LikeFolio members this afternoon.

 

 

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