Should I Buy Planet Fitness Stock? (NYSE: PLNT)

planet fitness stock
Photo from Planet Fitness IPO filing, June 22, 2015.

Planet Fitness stock (NYSE: PLNT) hit the market today, Thursday, Aug. 6. The Planet Fitness IPO is one of the most anticipated deals of the year as the company becomes only the second publicly traded gym company behind Town Sports International Holdings Inc. (Nasdaq: CLUB).

With PLNT stock's debut today, people are wondering, "Should I buy Planet Fitness Stock?"

Here's a closer look at the Planet Fitness IPO and Planet Fitness stock...

Everything You Need to Know About the Planet Fitness IPO

Planet Fitness Inc. (NYSE: PLNT) originally set a price range of $14 to $16 a share for its IPO. The company filed to raise $203 million by selling 13.5 million shares.

Last night, Planet Fitness stock priced at the high end of the range at $16 a share. It raised $216 million, about 86% higher than the $116 million raised by the Town Sports IPO in 2006. Planet Fitness commands a $1.5 billion valuation, which is more than three times the size of Town Sports' pre-IPO valuation of $455 million.

Planet Fitness is one of the largest franchised gym chains in the United States. It has more than 1,000 locations and hopes to quadruple that number down the road. The chain brands itself as a "Judgment Free Zone," which the company describes as "an environment where you can relax, go at your own pace, and just do your own thing without ever having to worry about being judged."

How Does Planet Fitness (NYSE: PLNT) Make Money?

The company is widely known for its low-cost memberships. A standard membership costs $10 a month on average. Premium memberships average $19.99 a month. They offer PF Black Cards that allow members to purchase products from Reebok and other retailers at a discount. Its Black Card membership has grown from 38% of all members in 2010 to 55% in 2014.

Planet Fitness has seen strong sales growth in the last few years. Its adjusted earnings jumped 41.5% from $71.1 million in 2013 to $100.6 million in 2014. Revenue increased from $211 million to $279.8 million over the same period. Same store sales growth rose from 8.4% to 10.8%.

However, the company has $506.4 million in debt as of March 31. That will require large interest payments, which could impede the company's growth.

"We have a substantial amount of debt," the Planet Fitness IPO filing stated, "and our substantial indebtedness could adversely affect our financial condition and limit our ability to pursue our growth strategy."

With all of that in mind, should you invest in Planet Fitness stock?

Should I Buy Planet Fitness Stock? (NYSE: PLNT)

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With its ambitious expansion plans and growing membership of 7 million customers, Planet Fitness stock could be a strong addition to your portfolio down the road.

But we recommend holding off on investing in Planet Fitness Stock until after the IPO lock-up period ends in 180 days on Feb. 2, 2016. The IPO lock-up period is the stretch of time after a company hits the market in which inside investors like venture capitalists and hedge fund managers can't sell their shares of the stock.

After the lock-up period is over, a flood of sell-offs occurs because inside investors want to sell their in-demand shares to retail investors like us and turn a quick profit. That causes us to miss out on the big gains the wealthy Wall Street investors already snagged.

Etsy Inc. (Nasdaq: ETSY) is a perfect example. The online marketplace company returned 87.5% on the first day and was considered one of the most popular IPOs of 2015 when it hit the market.

Since then, ETSY stock has plummeted 54.1% and is considered the worst IPO of the year. That means any retail investor who jumped in at those elevated prices is looking at hefty losses.

The Bottom Line: As Planet Fitness hits the market, investors are asking, "Should I buy Planet Fitness stock?" Newly issued stocks can soar out of the gate, but retail investors like us usually can't get in until after the stock's big gain. That can cause huge losses if the stock sells off after the lock-up period ends. We recommend waiting for the IPO lock-up to end before investing in PLNT stock.

Alex McGuire is an associate editor for Money Morning who writes about upcoming IPOs. Follow him on Twitter at @AlexMcGuire92 for all the biggest IPO news.

More on IPOs: Luxury fashion retailer Neiman Marcus just filed for an IPO that could raise up to $800 million. The deal comes at a time when the luxury-fashion market is exploding. In fact, it's projected to grow to $354 billion within five years. Here's whether or not you should invest in the Neiman Marcus IPO when it hits the market this year...