Investors looking for growth stocks ahead of the next potential bull rally would do well to look at the fitness industry. planet fitness (PLNT 1.11%) and Lululemon Athletica (LULU 0.17%) sit at the forefront of a pack of fitness offerings that have been quashed by the onset of the global pandemic event. These stocks faced further headwinds from the recent downturn in financial markets and interest rate hikes by central banks.
As the world returns to a new normal, a bull market rally seems almost inevitable. These two stocks offer exceptional growth potential ahead of the next major market upleg.
1. Planet Fitness relies on its Judgment Free Zone
Planet Fitness offers gym members a Judgment Free Zone, a place where they can strengthen their bodies without having to worry about the thoughts or opinions of those around them. This selling point isn’t entirely new in the world of gyms, but many competitors tend to limit memberships — by gender or age, for example — to meet these ideals. Planet Fitness offers an inclusive environment without limiting facilities to specific segments of the community.
Noble ideals don’t make a business plan, but Planet Fitness has proven its concept in the business world. With a market cap of $7 billion, the company flies past companies that promote similar ideals (such as Torrid Holdings, Inc. and its Curves line of women-only gyms). Planet Fitness continues to grow and has shown surprising resilience during the early years of the pandemic. Earnings per share increased year over year to $0.32 from $0.21 in the third quarter, and net income increased 50% to over $26 million over the same period. The company’s international expansion goals show its willingness to do more.
2. Lululemon continues to count on the community
Lululemon brings its offerings directly to the community, eschewing traditional marketing practices in favor of supporting local gyms and word of mouth. Year-to-date, Lululemon’s share prices are down around 10%, and while that’s viewed as a weakness by some, it also offers savvy investors an opportunity to pick up shares at a lower entry cost than at the start of the year.
The company remains strong and has continued on its upswing since the early days of the pandemic. Basic earnings per share increased significantly from 2021 to 2022 with second quarter totals increasing year over year from $1.60 to $2.27.
Like Planet Fitness, Lululemon continues to grow overseas, as international and Canadian revenue increased by over $1.25 million in the second quarter on a yearly basis. Operating income rose 38%, indicating strong growth in tough times.
Planet Fitness faces many challenges in the fitness space. Lifetime Group HoldingsFor example, offers similar deals with memberships at a variety of gyms to make it easier for users to find the right fit. Peloton Interactive still hopes to revolutionize home fitness with products, classes and support for those who prefer to avoid shared equipment and still reap the benefits of shared support. These companies, too, can benefit from a fitness rally.
Lululemon Athletica’s older competitors, including Nike and under armor, it may well be easier to hedge against higher freight and material costs resulting from the pandemic and global economic or supply chain issues. Lululemon recognizes this challenge in its quarterly filings and expects to address it throughout 2022 and into 2023. Its awareness of the situation allows the company to plan for it and develop tools to close the gap when it comes to avoiding unnecessary cost increases.
The power of the unique selling proposition
These two fitness companies want to continue to grow through their unique selling propositions. As Planet Fitness continues to expand into international markets, its brand awareness and global market share appears likely to expand.
Lululemon’s focus on growing both its menswear and womenswear lines remains a core part of its strategy. The latest quarterly filing shows a 27 percent increase in revenue from men’s products and a 24 percent growth in women’s collections. Women’s products still make up more than 63% of total sales. That means plenty of room for further growth.
Each of these growth stocks appears poised to make the most of the next bullish rally, and each currently presents a major opportunity for investors looking for winners who learned from the early days of the pandemic and have come out stronger from that knowledge .
Nicholas Robbins has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica, Nike, Peloton Interactive, Planet Fitness, and Under Armor (C shares). The Motley Fool recommends Under Armor (A shares). The Motley Fool has a disclosure policy.