Planet Fitness, Inc. CEO Christopher Rondeau
Investors looking for a cue to jump into the market may be well served to sign up for shares of Planet Fitness, Inc.
Christopher Rondeau, CEO of the fitness-club operator (ticker: PLNT) , made the highly-unusual move of purchasing 25,000 shares ($1.7 million worth) of his company in the open market this week amid a serious rout. Mr. Rondeau snagged the shares at a price of $67.24, well below the recent record high of $88.77 the stock touched before Coronavirus worries crushed companies that attract customers to public places.
One long/short hedge fund manager interviewed by IPO Edge who has been bearish in recent weeks said he is following Mr. Rondeau’s lead and buying shares, pointing to the CEO’s history of selling – not buying stock.
Indeed, Mr. Rondeau has never bought shares in the open market. On the contrary, he has been a regular seller of shares since the company’s 2015 IPO, unloading a whopping 3.6 million shares worth about $150 million, according to Sentieo, a leading AI-enabled financial research and workflow platform.
“Insider buys are relatively rare: They usually signal confidence in the prospects of the company,” said Nick Mazing, Director of Research at Sentieo. “With the recent declines in the markets, we have seen an increase in insider buying. But the Planet Fitness CEO purchase at over $1 million is even rarer: Only the CEOs of The Brink’s Company, Hess Midstream LP and Continental Resources, Inc. have bought in that size recently.”
Planet Fitness has attributes suggesting it can weather an economic downturn. The gym disruptor has membership packages as cheap as $10 a month, a small fraction of the typical fitness club cost. At that rate, even people who lose their jobs can probably manage to hang onto memberships.
The profit profile of the company is also highly attractive. Planet fitness uses a franchise model, meaning it doesn’t have to put money into equipment and rent. Instead, it allows franchisees to shoulder those expenses and the company collects high-margin royalties.
What could the stock be worth? At the current price, the fast-growing company trades at about 23 times 2021 free cash flow, according to Sentieo. A more reasonable multiple of, say, 35 times, would put the shares at $95 apiece.
Some big money managers are wary of buying PLNT just yet. “CEOs buying their stock is usually a good sign but in a market under correction ‘love is blind,’” said hedge fund manager and Wall Street legend Charles Gradante. “They’re often early.”
Indeed, the shares still carry risk in the event of a more widespread Coronavirus outbreak. But after such a precipitous decline, now may be the time to begin bulking up on PLNT.
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John Jannarone, Editor-in-Chief