1 Unstoppable Stock That's Up 55% in 1 Year. Is It a No-Brainer Buying Opportunity?

The stock market has been on a tear, thanks to a resilient macro backdrop. The prospects of lower interest rates and stronger economic growth might be adding to the tailwinds.

There's one stock in particular that has caught my eye, soaring some 55% just in the past 12 months, better than even the 32% total return of the broader S&P 500 index during the same period. Does this powerful momentum mean that the business is a no-brainer buying opportunity right now?

Posting solid results

The company that has outperformed the market in the past year is none other than Planet Fitness (NYSE: PLNT). The franchisor and operator of low-cost fitness gyms recently reported third-quarter 2024 financial results that were very well-received by investors.

During the three-month period, Planet Fitness registered 5.3% year-over-year revenue growth. This was driven by a 4.3% same-store sales gain, as well as the opening of 21 net new locations. There are now currently 2,637 Planet Fitness studios in operation.

The management team was so pleased with the results that they upped their 2024 guidance, now expecting a top-line jump of 8% to 9%, up from a prior outlook of between 4% and 6%.

Through the first nine months of 2024, Planet Fitness produced $295 million in operating cash flow. That was 10% higher compared to the same time last year. This was a solid enough showing for executives to authorize a new $500 million share buyback program.

Looking to the future

Investors always appreciate a good growth story. The belief is that if a business can expand rapidly, then sales and profits will soar, too. Planet Fitness might be drawing the attention of these growth investors.

The leadership team, led by CEO Colleen Keating, thinks that the company's ultimate outlook is very bright. They see the potential to have 5,000 stores open across the U.S. one day. This would undoubtedly further bolster Planet Fitness's position in the industry. And it would essentially double Planet Fitness' current physical footprint.

This target may or may not be realistic. On the one hand, executives could simply be publicly stating a large number to drive interest from the investment community. A more bearish and tempered perspective will call out the fact that the growth going forward might not resemble the past, since Planet Fitness will mature as a company and suitable real estate for new locations will be harder to come by.

But on the other hand, getting to 5,000 gyms is also a believable goal. There are about 41,000 fitness studios scattered across the country. I don't think it's really a stretch for Planet Fitness to eventually command a 12% share, which still leaves the industry fragmented.

If management starts to make progress toward that target, it's easy to be optimistic that sales and earnings will absolutely skyrocket over time. Because 90% of the stores are franchised, Planet Fitness runs a capital-light model that should, in theory, scale up in a profitable manner.

Is Planet Fitness a smart buy?

Finding lasting success in the fitness sector is difficult, as consumers often don't stick to their workout routines. Making things more difficult is that they usually gravitate toward the hottest new trend due to fickle tastes. But Planet Fitness has bucked this trend. It's a growing and profitable enterprise that is likely to continue seeing success in the future.

However, I believe that the company's current valuation leaves much to be desired. As of this writing, shares of Planet Fitness trade at a forward P/E ratio of 40. This leaves zero margin of safety for prospective investors. Only the most bullish supporters who think growth will be supercharged should consider buying the stock right now.

If you're like me, and valuation is a key part of your decision-making process, then it's best to wait before adding Planet Fitness to your portfolio.

Should you invest $1,000 in Planet Fitness right now?

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Neil Patel and his clients have 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.