The performance of Planet Fitness Inc.’s stock on its debut day indicates that things in the fitness and fitness training world might not be quite as healthy as they should be.
Planet Fitness, which had priced its initial public offering (IPO) at $16 per share, saw its stock fall by more than 10% as it traded just above $14 within the first few minutes of opening on the New York Stock Exchange. The IPO was for the sale of 13.5 million shares in order to raise $216 million.
Before the Planet Fitness debut, data company Sageworks chairman, Brian Hamilton said he believed Planet Fitness had “strong fundamentals” and that its IPO, together with that of Fitbit, show investor interest in the fitness sector. He referred to the very successful Fitbit debut which saw the price surge by 160% from its IPO price on the first day of trading.
Meanwhile, Fitbit (FIT, -13.63%) shares fell heavily after the release of its maiden quarterly report even though the results beat analyst earnings forecasts. Suffering from a malady similar to that facing Apple, investors punished Fitbit for not announcing new products rather than rewarding the company for good results.
Planet Fitness, which comprises 57 company-owned gyms, is also a franchisor with 919 franchise gym operations, currently offering the cut price budget plan gym membership model introduced by founder Michael Grondahl.
Planet Fitness derives a large percentage of its revenue from the one time sale of branded equipment to new franchisees which makes this revenue stream dependent on the continual opening of new franchise operations. There is also an initial $10,000 franchise fee and an ongoing royalty fee of 5% with franchises for a 10 year period which is renewable.
New Constructs analysts have taken a cautious view on the Planet Fitness stock giving it a neutral rating. The analysts believe that while the company has posted good profit and store growth figures for the past few years, this performance is unsustainable.
The analysts wrote that, “Apart from discouraging weightlifters or ‘hardcore gym users’ Planet Fitness’ offering is not especially attractive in any way, except maybe the price.”
A general fall off in market prices on the day could possibly have had a knock on effect on the Planet Fitness stock. The other two Wednesday debutantes, SkinnyPop-maker Amplify’s (BETR, -2.73%), which closed its first day 10% down on its IPO, and solar company SunRun (RUN, -18.57%), which ended 21% below its issue price, appear to have shared the Planet Fitness poor opening performance.