Planet Fitness Stock Plunged Following Earnings. Should You Buy?

The current earnings season is not over yet, but Planet Fitness (NYSE: PLNT) is on track to become one of the more notable stocks of this period.

The gym stock -- which was already down significantly for the year -- lost almost one-third of its value following its first quarter earnings release Thursday. Cuts to its sales and earnings guidance, as well as management's decision not to increase the price of its premium Black Card membership, appeared to spook investors. The stock is now down by about 58% year to date.

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That may leave investors wondering what to do. Should they buy Planet Fitness or stay away from what has suddenly become an even more volatile stock?

At first glance, Planet Fitness's earnings report appeared solid. Revenue was up 22% year over year to $337 million. Also, even with a 101% increase in the cost of revenue amid higher marketing spending and operational challenges, its net income surged 23% higher to $52 million.

Still, the cost of revenue quickly became a concern. On top of the decision to hold the cost of the Black Card membership steady, new member sign-ups fell by 36% year over year, and the company increased marketing spending.

Consequently, it adjusted its expected 2026 revenue growth to 7%, down from a previous forecast of 9%. It also forecast a 2% net income decrease, in contrast to its previous guidance for a 4% to 5% increase.

Nonetheless, the plunge in the stock price looks like an overreaction, and not just because it's at its lowest levels since 2020. The trailing P/E ratio is now at 17, and its forward P/E is down to 13.

This sort of stock behavior seems to be pricing in the premise of a permanent slowdown in Planet Fitness' business, and it is too early to tell whether that is what's happening.

Admittedly, with the stock being hammered this year, CEO Colleen Keating's leadership may face a test. Also, Planet Fitness has traditionally been the gym of the budget-conscious consumer, a factor that could make it harder for the company to raise prices.

Still, the company expects between 180 and 190 new club openings, a significant addition for a company with 2,909 locations as of March 31. Also, another 150 to 160 franchisee-owned locations are expected to buy new equipment, likely boosting its competitiveness.

These do not look like the actions of a company that's permanently doomed to grow earnings at 2% per year. Additionally, the Black Card increase the company delayed will probably go through at some point, which should help the stock recover.

Given the state of Planet Fitness, the stock looks to be a buy at these levels.

True, the upcoming revenue slowdown and earnings decline are causes for concern. Also, management's reluctance to increase the cost of Black Card membership is not going to bolster investors' confidence in the stock.

However, its forward P/E ratio of 13 should limit the stock's downside risk from here. If the sentiment around the company proves to have been overly pessimistic, Planet Fitness stock will probably recover.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Planet Fitness. The Motley Fool has a disclosure policy.

Planet Fitness Stock Plunged Following Earnings. Should You Buy? was originally published by The Motley Fool