It’s no secret that Americans tend to overindulge during the holidays. Thanksgiving is generally considered to be the day of the year with the highest average calorie intake. The Calorie Control Council estimates that Thanksgiving dinner alone can contain 3,000 calories. A calorie surplus during the holidays often leads to New Year’s resolutions to stay healthy. That’s why Planet Fitness (PLNT) is also on your shopping list for this year’s holiday inventory. PLNT’s long-term growth story is solid due to its differentiated value proposition, asset-light franchise structure, and “broad” addressable market. Upscale gyms continue to raise prices, while boutique studios struggle to lose customers post-pandemic. During this time, Americans are struggling not only with their weight but also with their bills. Signs of consumer financial stress are evident not only in surveys of anticipated holiday spending, but also in car loan and credit card delinquencies and cash balances among low-income households. Planet Fitness wins in this department with affordability. “Gyms and Fitness Clubs for Everyone” memberships start at just $15 a month, and the Judgment Free Zone branding continues to attract first-time gym-goers, an underserved demographic. The franchise model is a powerful source of operating leverage. Franchisees fund the majority of new club openings, and Planet Fitness collects royalties and fees that generate high-margin recurring revenue. This model allows for rapid domestic and international growth without creating tighter balance sheets that burden competitors. As new clubs emerge and mature, corporate profits grow and cash flows become increasingly predictable. Think of this as the McDonald’s of fitness in the franchise world. As it happens, barbell trading will be interesting. What may put off some investors is that the stock is trading very close to all-time highs following strong results earlier this month. The stock is trading at about 31 times forecast adjusted earnings per share for next year, and given the forecast growth of 11% in sales and 17.5% in bottom line, the stock price is reasonable. Trade A’s call spread risk reversal allows investors to participate in incremental increases while facing only the risk of owning a stock at a price that recently skyrocketed after earnings. Note that the bid and ask spreads for Planet Fitness options may be slightly wider than for options from larger companies with higher option trading volumes. Therefore, it is important for investors to use limit orders with such spreads and “walk” the limit up and down in steps to ensure the best possible execution. For example, January’s 97.5/115/125 call spread risk reversal was a $0.50 debit bid to a $1.60 debit offer, or a $2.10 wide. You would pay $0.50 to sell a call spread and buy a put on the downside, or $1.60 to buy a call spread and sell a put. This is the structure we want. In this situation, you can find the midpoint between the bid and ask spread (debit ~$0.55) and enter it as a limit order. If it does not run after a minute or two, increase the limit by the minimum increment. For example, if the minimum increment is $0.05, the limit increases from $0.55 to $0.60. Again, if we are unsuccessful, we will increase the limit again by the nickel increase. This “walks” the limit price. Be sure to take a minute or two. Assuming the stock price isn’t moving too quickly, this extra step and a little patience will pay off and give you better execution. Disclosure: None. All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent or affiliate companies, and may have been previously disseminated on television, radio, the Internet, or another medium. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect your unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for full disclaimer.
