There’s a reason why most gym and fitness companies see sales increase at the start of the year, followed by a sharp decline before the first quarter ends. Consumers know they should devote more time to caring for their health, so each and every January 1st, a swath of the population commits to a new exercise regimen.
Of course, New Year’s resolutions are notoriously short-lived, and many of those gym memberships and pieces of home exercise equipment start gathering dust by the time February rolls around. Research shows that more than half of new gym memberships are canceled within the first six months. Four out of five gym members are gone by the eight-month mark.
Very few gym and fitness companies have learned the secret to keeping members engaged long-term. The ones that have are the brands that deliver consistent profits and shareholder returns. If you are interested in adding fitness to your portfolio, these are the three best gym stocks to buy now.
Peloton Stock Has Enormous Potential
Peloton (PTON) held its IPO in September 2019, and for its first two quarters as a publicly-traded company, it chugged along steadily. Share prices climbed gradually, finally breaking $30 for an extended period in April 2020. However, as consumers settled into COVID-19 restrictions, Peloton products caught their attention. Elimination of long commutes and gym closures made at-home fitness equipment far more attractive.
Sales started to pile up, reaching a peak during the holiday season. By January 2021, the stock topped $150 per share.
Unfortunately, several factors combined to give Peloton a rocky first quarter. One of the most alarming was a recall of treadmill products after it was determined that the machines posed a risk of injury.
Share prices hit a low in mid-May, but the drop was short-lived, and Peloton stock is on its way back up. Investors are taking the temporary discount as an opportunity to buy in before the company regains its footing and hits new highs.
Analysts believe Peloton investors are right to be optimistic about the company’s future. Current members of the Peloton community are upgrading their equipment, and product lines are expanding. New features are on their way, along with a long list of additional workout classes intended to reach even the least-enthusiastic participants.
On top of all of that, Peloton is planning a robust marketing campaign, which is likely to boost sales even more. If past marketing results are repeated with the new strategy, the return on investment will be quite impressive. Peloton has historically succeeded in turning advertising dollars into revenue.
Finally, Peloton is ready to expand its international presence. It is currently in the process of getting to know Australian consumers, and it has plans to move into one or two additional markets each year. By any measure, Peloton has virtually unlimited potential, as long as there aren’t any more safety concerns.
Rapid Sales Growth Powers Lululemon Share Price
Some investors are still scratching their heads in disbelief over the rise of Lululemon Athletica. After all, how can anyone make a profit on yoga pants? Perhaps these naysayers have forgotten about Nike (NKE), Champion, and Under Armour (UA). More likely, it’s a surprise that an athleisure brand catering almost entirely to women can rival these industry leaders.
It’s true that Lululemon Athletica wasn’t an instant success. It was founded in 1998, but it didn’t really catch on until more recently. However, when consumers did became aware of Lululemon Athletica, they flocked to the brand. As a result, the company saw sales growth in the double digits annually for the past five years.
The COVID-related work-from-home revolution has been especially helpful for Lululemon. The clothing finds the right balance between comfort and style to fit in with a home office environment. Whether people return to the office or not post-COVID, the brand grew its fanbase exponentially over the past 12 months, and most of those consumers are likely to remain loyal.
Lululemon Athletica announced its first-quarter results in early June, and it is clear that the company shows no signs of slowing growth. The quarter’s revenue came in at $1.2 billion, which represents an 88 percent increase year-over-year. Gross profit margin went from 53.9 percent two years ago to 57.1 percent today. That means sales are not contingent on promotional activity, which is a promising sign for future success.
All in all, analysts are nearly unanimous in their agreement that Lululemon is one of the best gym stocks to buy now. If current trends continue, the company will reliably deliver shareholder returns for the foreseeable future.
Planet Fitness Has 15 Million+ Members
Once upon a time, joining a gym was an upper-middle-class experience. Among other benefits, the hefty membership fees offered access to pools, saunas, and personal trainers. Patrons were dedicated to a fitness-based lifestyle, and there was no space for ordinary people just starting out on their fitness journeys.
A new kind of gym evolved to meet the needs of the large unaddressed market of the not-particularly-fit. Planet Fitness launched as a “judgment-free zone” where people who had never stepped foot in a gym before could feel comfortable.
The facilities are clean and well-maintained, but they are not over the top – no pools, saunas, or smoothie bars. That keeps membership fees low, making Planet Fitness an affordable choice for more casual users.
Planet Fitness isn’t the only gym that has chosen the low-cost, minimalist approach. LA Fitness, Youfit Health Clubs, and several others are using the same model. However, Planet Fitness is far and away the most popular in this market segment – perhaps because of its award-winning customer service. The company’s biggest claim to fame is its ability to create a supportive community for everyone – regardless of size and level of fitness.
There are more than 2,000 Planet Fitness locations serving roughly 15.5 million members, and those figures continue to grow. In its most recent investor presentation, the company forecasted at least 4,000 US locations and 300 locations in Canada long-term.
In other words, Planet Fitness has already demonstrated it can weather even the most adverse conditions while continuing to grow and expand.
Best Gym Stocks to Buy Now: The Bottom Line
The bottom line is that while fitness is important, many people don’t enjoy it enough to put their money into home exercise equipment, costly athletic apparel, and expensive gym memberships. In fact, a full 80 percent of the US population says they don’t put a lot of time and effort into fitness-related activities such as going to a gym or working out at home.
Companies that can persuade these consumers to make physical activity a high priority are succeeding where many of their competitors have failed. Peloton, Lululemon, and Planet Fitness have developed a following because they make fitness fun – and that likely means profits that will translate into shareholder returns.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.