Up 25% in 1 Year, Is This the Ultimate Growth Stock to Buy With $1,000 Right Now?

Key Points

• After being disrupted during the COVID-19 pandemic, this company has performed well from a fundamental perspective.

• By leaning on a franchise model, this business can grow its store count and membership base in an asset-light manner.

• The stock isn’t cheap, but it might be the best way to gain exposure to this industry right now.

• 10 stocks we like better than Planet Fitness ›

Investing in the S&P 500 has historically worked out quite well for investors. Just in the past year, the closely watched benchmark has climbed 19% (as of Sept. 12). This is a gain that no one should complain about.

However, some companies are taking better care of their shareholders. There's a mid-cap stock that has risen 25% in the last 12 months, outpacing the overall market. And there are compelling reasons to like the business. Is this the ultimate growth stock to buy with $1,000 right now?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

Flexing its muscles in the fitness industry

When looking at the fitness industry, a lot of attention has gone to Peloton in recent years. But investors shouldn't forget about Planet Fitness (NYSE: PLNT), whose shares have beaten the market in the past year, as mentioned.

After the onset of the COVID-19 pandemic more than five and a half years ago, the company hit a rough patch, as its stores were closed temporarily to stop the spread of the virus. Since that brief, but difficult, moment, the business has been doing well.

The momentum has continued into this year. During the second quarter (ended June 30), Planet Fitness' revenue increased 13.3% year over year to $340.9 million. It now has 20.8 million members, up from 14.4 million at the end of 2019, just prior to the health crisis. Opening new stores, 23 in Q2, is a key growth driver. A robust same-store sales increase of 8.2% also boosted the top line.

There are now 2,762 Planet Fitness studios in total, with 2,603 in the U.S. The leadership team believes there is substantial room to keep expanding. They've set a target of reaching 5,000 stores domestically one day.

There appears to be a huge untapped opportunity. According to the business, only 7% of the U.S. population over the age of 14 was a member of Planet Fitness at the end of last year. It helps that the monthly fees are so low ($15 for the cheapest option and $25 for the premium offering) because this reduces the friction to get people to sign up.

"As consumers increasingly prioritize health and well-being, Planet Fitness is well positioned to meet this demand with our judgement-free, high-quality, and affordable fitness experience." CEO Colleen Keating, who took the top job in June 2024, said in the press release.

Benefits of franchising

Planet Fitness reported operating income of $102 million in Q2, up 17.2% year over year. That translates to a stellar margin of 30%. It helps that the business operates a franchise model.

Of the 2,762 locations in the Planet Fitness system, only 10% are owned by the company. The remaining 90% are owned by franchise partners. These entrepreneurs invest their own money, taking on the risk associated with a new venture. A portion of sales goes to the parent company in the form of royalty fees, for instance. Planet Fitness provides ongoing operational support.

This could explain why the business has historically been extremely profitable. Growing on the backs of other people's capital creates an asset-light model that can scale up well. It makes sense why the consensus view on Wall Street is that earnings per share will increase by 57% between 2024 and 2027, faster than the expected revenue gain.

Planet Fitness trades at a steep valuation

Investors might view this as a solid company. There are valid reasons to think this way. But I wouldn't go so far as to say this is the ultimate stock to buy with $1,000. There are other businesses that might fall into this category.

It's also worth examining if shares are a good value today. The stock trades for a price-to-earnings ratio of 45.3. This in no way presents a bargain opportunity. The best thing to do is wait for a pullback. But I can understand why bullish supporters who want immediate exposure to the fitness industry would act differently.

Should you invest $1,000 in Planet Fitness right now?

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive and Planet Fitness. The Motley Fool has a disclosure policy.