Why This Planet Fitness Analyst Says Short Seller's Allegations Of Unethical Business Practices Lack Fundamentals

A recent short thesis about Planet Fitness Inc PLNT came under fire for being "light on fundamentals" and failing to mention the positive data points that had recently emerged for the company.

What Happened: A short report issued on Thursday by The Bear Cave, which is run by well-known short seller Edwin Dorsey, alleged Planet Fitness had issues with overbilling and uncancelable memberships — and is even lying about the locations of its gyms … Read more

Dorsey’s report alleged Planet Fitness relied on beginners for subscriptions and had a pattern of cancellation attempts being ignored. The report also said Planet Fitness “created a fake investor presentation slide to obscure franchisee saturation.”

Linda Bolton Weiser, managing director and senior analyst at D.A. Davidson & Co., disagreed with Dorsey’s short thesis.

“Short thesis is light on fundamentals,” Bolton Weiser said to Benzinga on Thursday, adding that she made a "Buy" rating for the stock.

“This short thesis on [Planet Fitness] is light on fundamentals, which is why the stock is down only 2.5%. It fails to mention all the positive new data points that have recently emerged,” she continued.

According to the analyst, workout frequency among Planet Fitness members increased, leading to higher member retention rates.

Additionally, Bolton Weiser noted the average number of members per gym was now nearly back to pre-COVID-19 pandemic levels and member retention improved.

The company's free cash flow was also surging and the company resumed share repurchases, she said.

Critics of the short thesis argued customer complaints were common for any consumer services business and during the pandemic when gyms were closed, many members canceled their annual memberships, despite claims Planet Fitness made it difficult to do so.

Planet Fitness responded to Benzinga regarding the short report: “We completely disagree with the Bear Cave newsletter’s assessment of our business practices. At Planet Fitness, our mission is to get people off the couch by providing them with a high-value, low-cost fitness option in a non-intimidating, judgment-free environment.”

Critics of the short thesis also argued the company's brand concept gave it a favorable positioning for long-term growth and the percentage of members who did not use the gyms in a 30-day period remained stable over time.

It was also suggested the stock valuation was not a problem and the short seller's fundamental knowledge seemed low, as he did not mention the only two fundamental negatives of the company: an HVAC system supply issue for new gyms and a slower pace of franchise openings, due to many developing ahead of schedule pre-pandemic.

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