I am happy to see that I am not crazy. When I first read the results that morning I was thinking that this is actually good news... but perhaps the stock market does not see it that way, specially the change in strategy. Ouch. If anything, this is even more bullish, since the transition to a higher quality balance sheet and unlocking the cash flow from those mature clubs will make the stock look safer and more attractive. You really need to dig into the numbers to understand this company is undervalued, because it does not look like that from traditional PE ratios or P/B. So my reasoning is, if their numbers improve, even if at the cost of future club growth, share price will go up. All of this not taking into account the positive surprise that could come from franchising. As I see it, it is a huge asymmetrical opportunity. If franchising doesn't work, the business will go on. If it is a success, it's easy money by selling your brand at a very low cost for the company. And PlanetFitness is mainly a franchise, so we have antecedents to know that it can work.
I completely agree with your take. I believe improving the balance sheet would be seen as a positive by the market, but no.
I think with the constant focus on net income in the investing world, Basic-Fit will be left in the dust until that sees some improvements. That would mean reducing debt such that interest expenses decrease, and improving profitability. Basic-Fit is doing both...
It is surprising, but Basic-Fit is also planning to franchise, as I mentioned. We'll get more details in the second half of 2025.
According to Rene Moos, Basic-Fit is slowing down club expansion precisely to focus on franchising, but also to improve the balance sheet. So, a surprising move, but not an irrational one.
I am happy to see that I am not crazy. When I first read the results that morning I was thinking that this is actually good news... but perhaps the stock market does not see it that way, specially the change in strategy. Ouch. If anything, this is even more bullish, since the transition to a higher quality balance sheet and unlocking the cash flow from those mature clubs will make the stock look safer and more attractive. You really need to dig into the numbers to understand this company is undervalued, because it does not look like that from traditional PE ratios or P/B. So my reasoning is, if their numbers improve, even if at the cost of future club growth, share price will go up. All of this not taking into account the positive surprise that could come from franchising. As I see it, it is a huge asymmetrical opportunity. If franchising doesn't work, the business will go on. If it is a success, it's easy money by selling your brand at a very low cost for the company. And PlanetFitness is mainly a franchise, so we have antecedents to know that it can work.
I completely agree with your take. I believe improving the balance sheet would be seen as a positive by the market, but no.
I think with the constant focus on net income in the investing world, Basic-Fit will be left in the dust until that sees some improvements. That would mean reducing debt such that interest expenses decrease, and improving profitability. Basic-Fit is doing both...
Thanks for your comment!
Another strong analysis! Liked reading about the buy back part.
Thanks, glad you liked it!
Taking a breather at a time PLNT is opening up in Europe is surprising. Any chance they could consider going the franchise route in your view?
It is surprising, but Basic-Fit is also planning to franchise, as I mentioned. We'll get more details in the second half of 2025.
According to Rene Moos, Basic-Fit is slowing down club expansion precisely to focus on franchising, but also to improve the balance sheet. So, a surprising move, but not an irrational one.