On Thursday, RBC Capital Markets adjusted its outlook on Planet Fitness (NYSE:PLNT), reducing the stock's price target from $80.00 to $77.00, while retaining an Outperform rating for the company's shares.
The fitness chain reported that its first-quarter results matched market expectations, but the company faced several challenges during the period. Notably, Planet Fitness experienced a significant increase in membership cancellations, which were largely attributed to the backlash from a bathroom policy incident that occurred in March. This issue has had a sustained impact, leading to a revision of the full-year 2024 guidance to figures below the consensus estimates.
In response to the current situation, Planet Fitness has decided to implement a price increase for its base subscription tier. Beginning this summer, new members will be charged $15 per month, up from the previous rate of $10. This move comes after the company experimented with various price points and ultimately chose to set the rate at the higher end of the spectrum.
The analyst from RBC Capital cited the ongoing elevated cancellation rates as the primary reason for the lowered earnings estimates and the reduced price target for Planet Fitness. The revised price target reflects the near-term uncertainties facing the company, despite the analyst's continued positive rating on the stock.
InvestingPro Insights
As Planet Fitness (NYSE:PLNT) navigates through the challenges of increased membership cancellations and policy backlash, real-time data from InvestingPro provides a broader perspective on the company's financial health.
With a market capitalization of approximately $5.76 billion and a P/E ratio standing at 40.62, the company is trading at a high earnings multiple, which reflects a premium valuation by the market. This is further emphasized by the adjusted P/E ratio for the last twelve months as of Q4 2023, which is slightly lower at 38.37.
One of the notable strengths of Planet Fitness is its impressive gross profit margin, which has reached 62.29% for the same period, showcasing the company's ability to maintain profitability amidst operational challenges. Additionally, the company's liquid assets surpass its short-term obligations, indicating a solid financial position for handling immediate liabilities.
InvestingPro Tips highlight that despite downward revisions in earnings by analysts for the upcoming period, Planet Fitness is expected to remain profitable this year and has been profitable over the last twelve months. Still, it is important to note that the company does not pay a dividend to shareholders, which may influence investment decisions for those seeking income-generating stocks.
For readers interested in a more in-depth analysis and additional InvestingPro Tips, there are 9 more tips available on InvestingPro for Planet Fitness. To access these insights and enhance your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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