Value-focused investors continuously seek stocks priced below their intrinsic value. One such stock that demands attention is Planet Fitness Inc (NYSE:PLNT). Currently priced at $51.41, the stock recorded a loss of 14.04% in a day and a three-month decrease of 15.77%. The fair valuation of the stock, as indicated by its GF Value, is $127.27.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from GuruFocus’s exclusive method. The GF Value Line on the summary page provides an overview of the stock’s fair value. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company’s past returns and growth, and future estimates of the business performance.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Planet Fitness: A Closer Look
Planet Fitness Inc is a franchisor and operator of fitness centers in the United States. The company’s reportable segments are Franchise, Corporate-owned stores, and Equipment. The Franchise segment includes operations related to its franchising business in the United States, Puerto Rico, Canada, Panama, Mexico, and Australia. The Corporate-owned stores segment includes operations with respect to all corporate-owned stores throughout the United States and Canada. The Equipment segment includes the sale of equipment to franchisee-owned stores in the U.S. The firm generates a majority of its revenue from the Corporate-owned stores segment.
Unpacking the Altman Z-Score
Before delving into the details, it’s crucial to understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Planet Fitness’s Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Planet Fitness’s Altman Z-score of 1.38 reveals that Planet Fitness’s financial health may be weak, suggesting possible financial distress. This complexity underlines the importance of thorough due diligence in investment decision-making.
Conclusion
Despite its seemingly attractive valuation, certain risk factors associated with Planet Fitness should not be ignored. These risks, primarily reflected through its low Altman Z-score, suggest that Planet Fitness, despite its apparent undervaluation, might be a potential value trap. GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
This article first appeared on GuruFocus.
