GYM Group‘s (LSE:GYM) a growth stock that’s mounted a strong recovery over the past three years. Since bottoming out at 84p in April 2023, it’s sprinted uphill to around 200p — a 138% gain.
However, this is well off the low-cost gym operator’s PB (personal best) of 334p, set back in 2018. That was before the pandemic wreaked havoc on the fitness industry.
Interestingly, the stock could have further to run, according to City analysts. Nine out of nine of them rate the stock a Buy, with their average 12-month target sitting 31% higher than the current share price.
Is there a potential buying opportunity to consider here?
Significant milestone
Earlier this week (9 September), GYM Group reported its results for the first six months. The reception was positive, with the stock rising 6.7% on the day (though it’s since slipped back).
There was a lot to like. Revenue rose 10% to £133.1m, driven by a 5% rise in memberships and higher average revenue per member per month (+5%). The group recently reached a significant milestone: 1m members.
First-half adjusted pre-tax profit surged 31% to £6.4m, while adjusted earnings per share jumped 21% to 2.9p. Free cash flow of £27.7m funded four new sites, enhancements to existing gyms, and £3m of a proposed £10m share buyback.
The company ended the period with 264 gyms, up 7% year on year. It expects to open at least 20 more this year, while eyeing up additional potential sites for 2027. I find it attractive that these new locations are being self-funded.
Both our new and mature sites are performing strongly, increasing confidence that we will deliver ROIC [Return on Invested Capital] of at least 30% across our site portfolio.
GYM Group.
For the full year, management’s guiding for 3% like-for-like revenue growth and like-for-like cost growth at the lower end of the expected range of 3%-4%. As a result, it sees adjusted EBITDA Less Normalised Rent at the top end of analyst expectations (£60.5m–£62m).
Fitness boom
Naturally, there’s a lot of competition in this market. The barriers to entry are quite low, and leisure centres with swimming pools and other facilities aren’t much more expensive to join (at least where I live). Switching costs are low.
Growth will be driven by new site openings and slow-but-steady price hikes. But there’s no doubt the overall fitness market’s booming: these days, young adults are more likely to be spotted doing reps than shots on a Friday night.
Another thing boosting this market is surging GLP-1 weight-loss drug use. The number of people taking these medications is expected to swell to around 7m by next year.