Are Americans getting more fit and healthy? If Planet Fitness Inc’s (NYSE:PLNT) earnings are to be believed, the answer is “yes.” The company that claims “you don’t need to be a world-class athlete to be celebrated like one” is seeing its stock celebrated today after better-than-expected earnings. But is Planet Fitness stock worthy of a golden spot in your portfolio?
PLNT stock put up some impressive numbers last year, gaining more than 50%. But PLNT hasn’t been able to carry that momentum over into 2018. The Planet Fitness stock’s poor price action wasn’t just due to the market correction either.
Click to EnlargeThe stock opened 2018 on a down note, pulling back from oversold levels and all-time highs near $35. PLNT stock would recover those losses, but a bearish double-top formed just ahead of a drawdown in the broader market, sending the shares back to support at $29.
Investors were clearly nervous ahead of last night’s earnings report. Planet Fitness stock was on the verge of testing resistance near $35 once again when profit taking set in.
PLNT stock dropped about 2.6% yesterday as a result.
But the company allayed those fears last night. Adjusted earnings came in at 24-cents-per-share, besting the consensus by a penny. Revenue was also strong at $134 million, well above estimates for $131 million.
Finally, PLNT projected a strong performance for fiscal 2018. The company said it expects full-year sales to increase by about 20% and adjusted earnings to grow by about 40%.
On the news, investors have pushed PLNT stock nearly 9% higher this morning.
More importantly, Planet Fitness stock is poised to best resistance at $35 — home to its former double-top.
Judging from market sentiment on PLNT stock, there is plenty of buying power still out there. For instance, roughly 7.8 million shares of Planet Fitness stock are currently sold short. With the shares breaking out above $35 to all-time highs, look for the weaker hands to cover and provide additional buying power for PLNT.
Meanwhile, these shorts are not hedged according to Planet Fitness’s options backdrop. Currently, the March put/call open interest ratio rests at an extremely lofty 5.56. In other words, puts are five times as popular as calls among front-month options. That’s an impressive amount of bearish sentiment that could unwind as additional buying pressure.
Overall, March implieds are pricing in a modest move of only about 2.2% for Planet Fitness stock after today’s rally. This places the upper bound just shy of $38, while the lower bound lies near $36.
Two Trades for Planet Fitness Stock
Put Buy: While I am tempted to chase the rally and bet on additional upside for PLNT stock, the odds favor a pullback or consolidation after today’s rally. This is doubly so with Planet Fitness’ relative-strength index (RSI) nearing overbought levels today.
While stock traders will want to buy any dips in the shares as PLNT stock consolidates, options traders might want to profit from such a dip by purchasing a March $40 put. At last check, this spread was offered at $3.60, or $360-per-contracts. Breakeven lies at $36.40, while a double on the trade lies at $32.80.
I don’t expect PLNT stock to drop below $35 on any pullback, so the target profit on this trade would max out at about $1.40-per-contract — or 38.8% if PLNT trades around $35 near expiration.
Call Buy: If you have a more bullish outlook on Planet Fitness stock, the March $35 call has profit potential as well. At last check, this option was bid at $2.40, or $240-per-contract. Breakeven for this call lies at $37.40, with a double arriving at $39.80.
If Planet Fitness stock can hold today’s momentum, the shares have the potential to test resistance at $40. Remember to set a trailing stop loss on this trade, so you don’t lose any gains on follow through buying, as well as a profit target on a daily trade near $40.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
