Why Planet Fitness Stock Just Spiked and Is Approaching All-Time Highs

© Provided by The Motley Fool Why Planet Fitness Stock Just Spiked and Is Approaching…



Why Planet Fitness Stock Just Spiked and Is Approaching All-Time Highs


© Provided by The Motley Fool
Why Planet Fitness Stock Just Spiked and Is Approaching All-Time Highs

What happened

Shares of Planet Fitness (NYSE: PLNT) spiked on Monday morning after promising news broke regarding a coronavirus vaccine candidate. A phase 3 trail showed 90% effectiveness for preventing a novel coronavirus that’s turned our world upside down in 2020. As of 10 a.m. EST, Planet Fitness stock has spiked as much as 29% higher and has been within a couple of percentage points of all-time highs.

So what

Here’s why the vaccine news could be particularly good for Planet Fitness. The company just released results for the third quarter of 2020, and its membership has taken a big hit in recent months. At the end of the second quarter, it had 15.2 million members, down just slightly from peak membership of 15.5 million. 



A businessman rides a rocket ship expelling cash exhaust over a multi-colored bar chart.


© Getty Images
A businessman rides a rocket ship expelling cash exhaust over a multi-colored bar chart.

However, as Planet Fitness’ gyms began reopening, it resumed billing its customers. Membership dues had been waived while locations remained closed. As long as they weren’t being charged, members weren’t canceling. However, now that they’re being billed again, cancellations have soared. By the end of Q3, Planet Fitness’ membership was at 14.1 million — down about 5% in a matter of months and down 10% from peak membership.

Loading...

Load Error

Planet Fitness’ management said the biggest drop in membership came from gyms that reached a second billing month. In other words, it appears people got surprised by their monthly bill once gyms reopened, but they made sure to cancel before they got the second bill. However, management said it did notice an additional decline in membership in areas where cases of COVID-19 were rising.

Now what

Here’s the question for Planet Fitness: Is the company losing members because they don’t want to have a gym membership while coronavirus cases are still rising? Or have members found better exercise-at-home options to replace their gym memberships? The latter will take time to confirm the trend, but it would put a major question mark on the long-term growth thesis.

However, if people are simply uncomfortable exercising at a gym where they could contract the virus, then today’s news of an effective vaccine candidate is good reason for Planet Fitness shareholders to be hopeful. Former members might rejoin the gym chain in short order. Realistically though, investors need to remember there’s still a lot that needs to happen to make a vaccine widely available. And Planet Fitness membership could languish until that happens. Therefore, I’d say the stock’s movement today is overdone. 

Jon Quast owns shares of Planet Fitness. The Motley Fool owns shares of and recommends Planet Fitness. The Motley Fool has a disclosure policy.

SPONSORED:

10 stocks we like better than Planet Fitness

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Planet Fitness wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of October 20, 2020

 

Continue Reading

Source Article