Global Club Expansion And Youth Engagement Will Foster Future Success

Key Takeaways

• Expansion among younger demographics and new markets, along with enhanced club formats, is broadening the membership base and supporting revenue growth.
  
• Operational efficiencies and increased pricing flexibility are improving margins, boosting profitability, and strengthening franchise economics.
  
• The company's growth and margins face risks from higher member attrition, limited advanced-user appeal, expansion challenges, franchisee instability, and intensifying industry competition.

Catalysts

Planet Fitness, Inc., together with its subsidiaries, franchises and operates fitness centers under the Planet Fitness brand.

• Accelerating engagement from younger, health-conscious demographics (Gen Z and soon Gen Alpha), combined with program successes like the High School Summer Pass, is expanding Planet Fitness's addressable membership base, driving revenue growth and supporting longer-term membership penetration.
  
• Ongoing format optimization-with more strength equipment, redesigned layouts, and attention to user preference-is increasing club utilization and member satisfaction, which should improve retention and provide opportunities for pricing power, positively impacting both revenue and net margins.
  
• Continued focus on value-oriented experiences and expansion into new geographies, including successful launches in international markets like Spain and flexible club formats for suburban/rural areas, supports top-line revenue scalability and franchise growth, while mitigating real-estate-related expansion limits.
  
• Rising Black Card penetration, combined with proven ability to implement price increases with minimal impact on churn, signals future near-term potential for further price hikes at this higher margin tier, directly benefitting average revenue per member and overall earnings.
  
• Strategic operational efficiencies-such as streamlined build-outs, smaller lobbies, and leveraging digital interactions-are reducing per-club investment costs and optimizing franchise economics, which should contribute to improved net margins and enhanced systemwide profitability.

Planet Fitness Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Planet Fitness's revenue will grow by 11.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.2% today to 19.3% in 3 years time.
• Analysts expect earnings to reach $312.8 million (and earnings per share of $3.72) by about September 2028, up from $189.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.5x on those 2028 earnings, down from 45.6x today. This future PE is greater than the current PE for the US Hospitality industry at 23.9x.
• Analysts expect the number of shares outstanding to decline by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.25%, as per the Simply Wall St company report.

Planet Fitness Future Earnings Per Share Growth

Risks

• The nationwide rollout of online cancellation (click-to-cancel) functionality has led to an elevated member attrition rate, which, if it remains higher than historical levels, could negatively impact long-term membership growth and recurring revenue.
  
• Planet Fitness's strong brand positioning as a "judgement-free" and beginner-friendly gym may limit its appeal to more advanced or committed fitness enthusiasts, constraining potential increases in revenue per member and reducing the average member tenure.
  
• Heavy reliance on aggressive physical expansion (adding new clubs) as a driver of earnings growth could become problematic if new locations cannibalize existing clubs or if franchisee demand slows, resulting in lower incremental returns and pressure on net income.
  
• The franchise-heavy, asset-light business model exposes Planet Fitness to risks of inconsistent club quality and franchisee financial distress, which could require added corporate support or buybacks, increasing operating expenses and pressuring net margins.
  
• Rising competition from well-capitalized boutique fitness studios and regional HVLP operators, combined with growing consumer demand for holistic wellness and value-added services, could erode market share, limit pricing power, and slow membership and revenue growth.

Valuation

• The analysts have a consensus price target of $122.812 for Planet Fitness based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $175.0, and the most bearish reporting a price target of just $105.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $312.8 million, and it would be trading on a PE ratio of 42.5x, assuming you use a discount rate of 9.2%.
• Given the current share price of $102.58, the analyst price target of $122.81 is 16.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.