Planet Fitness shares tumble below IPO price in trading debut

So far, companies like exercise-tracking device maker Fitbit and golf, country and sports club firm ClubCorp are doing well in the stock market, said Pamela Kufahl, director of content and engagement at Club Industry, a fitness industry publication.

Shares of the budget fitness chain, which is known for its $10 monthly memberships, ended their first day trading at their IPO price after spending much of the day in the red. The company sold 13.5 million shares to raise $216 million.

Shares opened at 14.50 and rose 14.2% to 15.99, almost at its IPO price, just minutes before the close of its first day.

Planet Fitness, which is majority owned by private-equity firm TSG Consumer partners, began trading on the New York Stock Exchange on Thursday under the symbol “PLNT”. “After pricing at $16 per share, the company is valued at roughly $1.6 billion, or six times trailing revenues and 42 times trailing earnings; this is slightly rich for a company operating in their sector”. ‘It’s the atmosphere first, and then the price, it’s not the meat market environment thing found at most gyms, ‘ said Planet Fitness CEO Chris Rondeau in an interview with TheStreet about why the chain has become popular with consumers.

The Street argued that the gym chain is measured by how well it can retain its membership base, recruit new members and trade them up to premium services.

Rondeau revealed that the cost of opening a new gym on an average is $1.9 million, but most of that cost is fixed one-time cost. Same store sales growth?

But smack in the middle of all that enthusiasm was a cautionary note from two analysts from Forbes, which published an article entitled “Planet Fitness Not as Financially Fit as It Appears” on its website.

“A company has to grow rapidly in order to justify (the high PEs)”. Close to half of its revenue comes from selling equipment to its franchisees, which are required to replace equipment every 4-7 years.

Brian Hamilton, an IPO expert who is chairman of Sageworks, is somewhere in the middle.