We’ve got less than a month left in 2021, making this an ideal time to step back and take long look at where we’ve been, and where we’re going. There’s no doubt that where we’ve been is, well, a bit surreal. The last two years have been the kind of time that grandchildren ask about – What did you do when? – and that’s going to take some answering. But for investors, a few things are clear, even now.
First, there’s been a sea-change in our lives. Everything from the way we work to the way we play has been impacted. So let’s take a look at the way we play – in the form of fitness stocks. Gyms were mandated closed in 48 states during the pandemic crisis, and their members found ways to keep up fitness routines at home. Now that they can get back to the gyms, they are going – but they are also exercising more at home.
The stocks on our list here fit into both categories. Either way will help you get in shape physically, and according to the analysts, either of these stocks will help you get your portfolio in shape, too, with upside potential going up from 30%. We’ve got the details from the TipRanks database to go along with the analyst commentary.
Xponential Fitness (XPOF)
We’ll start with getting out to work out. Xponential Fitness is a curation and franchise company, with a portfolio of fitness brands covering a wide range of fitness activities and categories, dance and yoga to Pilates and barre to cycling and rowing to boxing and running. The company describes its mission as ‘making boutique fitness accessible to everyone,’ and through its franchisees and master franchise agreements, it offers qualified instructors at studio locations in 48 states, Canada, and 10 additional countries.
Xponential Fitness was founded just four years ago, in 2017, and in recent months the California-based company has been making strong moves to expand its international footprint. In September, it’s Rumble boxing brand signed a master franchise agreement in Australia, while in early December that same brand, along with CycleBar and StretchLab were the subject of another master franchise agreement in New Zealand. And, in October, the fitness company acquired its tenth brand name, Body Fit Training, a provider of strength and functional training programs.
These expansion agreements followed the company’s July IPO. The XPOF ticker made its Wall Street debut on July 23, when the company put 10 million shares for sale at $12 each. This was smaller than had been initially marketed; the Street had expected 13.3 million put up at $14 to $16 each. In the actual event, XPOF raised $120 million and the stock is up by an impressive 73% since the close of the first day’s trading.
In mid-November, the company announced its 3Q21 financial results, its second such report as a public company. Top line revenue grew sequentially from $35.7 million to $40.8 million, up 14%; even better, the company reported that the top line was up 60% year-over-year. In an important highlight for the quarter, the company sold 248 new franchise licenses and opened an additional 68 fitness studios. On a negative note, the net loss deepened considerably, from $1.9 million in the year ago quarter to $8.9 million in the current report.
Nevertheless, 5-star analyst George Kelly, from Roth Capital, covers XPOF, and likes what he sees, saying, “We believe XPOF has the ingredients to be a successful public franchise business – one that will eventually earn a premium multiple. Key is its management team, acquisition model, and favorable industry dynamic… We like XPOF’s entrepreneurial and disciplined management team, and its formulaic approach to buying and building fitness brands. These factors, together with improving industry conditions, should yield a predictable cash generative financial model…”
In line with these comments, Kelly puts a Buy rating on XPOF shares, and his $29 price target suggests it has room to run another 34% in the year ahead. (To watch Kelly’s track record, click here.)
The Strong Buy consensus rating on XPOF is unanimous – of 7 analysts who have reviewed the stock recently, all have recommended a Buy. The shares are selling for $21.65 and the $27.57 average price target indicates a 27% one-year upside potential. (See Xponential Fitness’s stock analysis at TipRanks.)
Peloton Interactive (PTON)
Next up is Peloton, a company that has transformed the in-home workout. The idea was deceptively simple: Peloton combined the online interaction of social media with high-end stationary bikes and exercise equipment, and it marketed that combination to an upscale customer base. The ‘big sell,’ the factor that originally made Peloton different from every other exercise bike on the market – and continues to be the company’s main selling point – was the online connectivity, allowing customers to participate in exercise classes from their own living room. The attraction of the product during the COVID crisis lockdowns is clear.
But the flipside is also clear. As the economy has reopened, Peloton’s blockbuster growth has stalled. In the company’s fiscal 1Q22 report, released on November 4, Peloton showed the second quarter in a row of sequential revenue losses, seeing the top line fall 13% to $805 million. EPS was negative for the third quarter in a row, and the loss deepened to $1.25 per share. On a positive note, both connected fitness subscriptions and digital subscriptions rose yoy in the quarter, the first by 87% and the second by 74%. This, however, has a caveat; it’s an indication that the company’s business is shifting – away from big-ticket exercise equipment towards a subscription service. And with lockdown policies receding, those subscription customers are working out at home less. Peloton’s business appears to be hitting a plateau.
One last statistic will bear this out. Peloton’s overall subscription revenue in fiscal Q1 made up 38% of the top line total. Subscription revenues were the bright point in the quarterly report – up 94% year-over-year.
Wall Street was clearly not happy about Peloton’s most recent results. The stock cratered after the release, adding further misery to a difficult 2021; the stock is down 72% year-to-date.
Some analysts, however, see the current weakness as an opportunity. Chris Woronka, writing from Deutsche Bank, says, “Right now, we believe the market is looking at fitness stocks as an “either/or” sector; either consumers stay at home to work out or they go back to their favorite pre-Covid-19 fitness facility. In our opinion, that’s an oversimplified view of the world; we think the hybrid work model extends to fitness, too, and that PTON has plenty of momentum to regain operationally. We fully acknowledge that sentiment on the stock isn’t likely to reflect this view until a few quarters of improved execution are in the books. But that’s wherein the longer-term opportunity lies; we think if indeed the stock can regain its footing for fundamental reasons, it has quite a bit of room to run.”
The analyst’s comments back up his Buy rating on the stock, and his $76 price target implies a 12-month upside potential of 79% for the beleaguered exercise equipment company. (To watch Woronka’s track record, click here.)
While Peloton shares are embattled, Wall Street hasn’t abandoned it. There are 26 recent reviews here, and the breakdown is interesting. It’s 12 to 12, for an even split between Buys and Holds, along with 2 Sells. This gives PTON a Moderate Buy consensus rating. The stock is selling for $42.49 and its $78.42 average price target is congruent with the Deutsche Bank view, predicting an 84% one-year upside potential. (See Peloton’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
