Life Time Group goes public this week. You can search for the Life Time stock ticker LTH on the New York Stock Exchange as soon as Thursday, Oct. 7. The company plans to sell 46.2 million shares between $18 and $21 a pop.
Yes, it's another gym stock. Remember when we covered F45 Training Holdings Inc. (NASDAQ: FXLV) and said gym stocks might not be the best day-one buy? Well, every rule comes with exceptions.
Life Time may or may not be one...
The fitness industry was one of the hardest-hit markets during the pandemic. Twenty-two percent of gyms closed, with $29 billion revenue lost since the start.
Now that stores are reopening, people are getting vaccinated, and new treatments are arising, people expect gyms to open up - those that survived, anyway.
Closures during the pandemic prove gyms need a cash surplus for any hope of sticking around. That, and you need a consistent product that doesn't fizzle out long after the IPO.
Here's why Life Time Group Holdings could be that gym stock...
What Is Life Time Group?
Life Time Inc. is more than a "gym." It's a health club chain offering unlimited workout classes, swimming, childcare, and more to its members.
The company is based in Minnesota since 1990. It was initially called FCA Ltd., then became Life Time Fitness in 1992.
The brand is prevalent in the St. Paul-Minneapolis area of Minnesota, with 30,000 employees and 156 locations across 29 states and even a handful of apartment residences in its portfolio.
The company calls itself a "leading lifestyle brand" tackling a holistic "wellness experience" versus solely a "gym." It has roped in 1.4 million members since it started.
Evidence suggests people like the brand. Life Time received 92 million visits in 2019, and still 48 million in late 2020 despite the pandemic earlier in the year. The first half of 2021 saw 32 million visits, and it's on pace for more in the second half of 2021.
Still, its recurring membership model has managed to rake in the cash, with 69% of the company's revenue coming from recurring membership.
The club also hosts more than 200 annual races around country, another revenue stream to help keep the brand alive.
That all shows in the company's financial picture...
Is Life Time Group Profitable?
Life Time made $30 million in profit on $1.9 billion revenue in 2019.
So, yes, Life Time has been profitable.
Again, the pandemic put a dent in those numbers. Its revenue fell by a whole billion, to $0.9 billion. It also took a net loss that year - not too deep a hole to fight out of, though, at $360 million.
Again in 2021 it repeated a net loss, but a smaller one - $229 million.
Despite most of Life Time's revenue coming from recurring memberships, the company closed its centers during the pandemic and did not collect monthly fees. The fact that it was able to stay afloat, in that case, speaks volumes about the business model.
Now that all 155 of Life Time's locations are open, it could see profitability again.
Since 2019, Life Time has opened nine new centers. It plans to open six more in 2021, then 20 in 2022 and 2023.
Finally, let's talk about whether it's a buy or not after the IPO.
Should You Buy Life Time Group Stock?
We warned you about F45 stock before its IPO. That stock fell just like we said it would, still trading under its IPO price of $16. It's fluctuated as low as 20% under that price, too.
Gym stocks can be worrisome because health fads are so volatile. F45 was the perfect example, focused on an extremely specific niche, high-end and tech-based fitness.
Life Time does not appear to be one of those. It's not new to the block. It follows more of a Planet Fitness Inc. (NYSE: PLNT) style model - more one-size-fits-all than niched-down. That offers more growth opportunity for the company, which Life Time is hungry to take advantage of.
The company eyes growth, citing a market opportunity of $900 billion in the overall "wellness economy." The more the pandemic slows down, the better it will be able to take a slice of that pie.
The demand for wellness partly stems from growing obesity during the pandemic, from 30.5% to 42.4% according to U.S. Centers for Disease Control, between 2000 and 2018. Forty-two percent of adults experienced weight gain during the pandemic so far.
That hopefully creates more impetus for gym memberships. And according to Life Time, Americans prioritizing health en masse will be a catalyst for growth.
Something else we should not forget is that Life Time stands to attract customers from the 22% of gyms that closed down during the pandemic.
Also, since this is a holistic wellness club, not merely a Planet Fitness-type gym, it doesn't charge Planet Fitness prices under $20 per month. The cost of an individual membership at Life Time is around $199.
Members get access to the club, fitness facilities, indoor pools, locker rooms, unlimited group fitness, and yoga classes. Childcare is also offered with a "junior" membership. Clearly, you get more amenities than Planet Fitness for your money.
All things considered, this looks like a sustainable business model that succeeds in building a high-end chain in a market where it's not easy to do so. Maintaining the capital required to operate in this market is something few companies can do, hence 22% of gyms shutting down.
Because Life Time has broken many thresholds already, we have confidence in its ability to grow further down the road.
That makes Life Time stock a buy as long as it's trading within its estimated range after the IPO.
The only other thing to be wary of is that buying too close to IPO is always a little risky. If the market is really excited, it can pump the price, then sink it in a matter of days.
If you want to avoid that altogether, here's a solid, long-term hold.
This Stock Could Triple Your Money
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Instead of IPOs, many companies have been going public via special purpose acquisition company (SPAC) lately. A SPAC is a company designed to acquire and take another company to market.
Money Morning's Shah Gilani says this SPAC opportunity could turn every $10 you invest into $30. And here's why...
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.