Sharing Knowledge in Smallcaps

[bar1080]

SA has a rare "PRO Open House" now and I was trying to comprehend this PRO writeup on what should be a very simple business, Planet Fitness - a chain of gyms, if you don't know.

SA PRO memberships are extremely expensive so it's a treat to view that material for awhile. Don't know how long the "open house" will last. Do you understand this review that involves some exceptionally complex legal and accounting matters?
http://seekingalpha.com/article/4043099-planet-fitness-rather-stuck-stairmaster-next-23-years

Here's a brief excerpt.

"Conclusion

This is a case of private equity doing what private equity is supposed to do. They bought into a growing company, helped it grow rapidly over five years, figured out a way to extract as much revenue as possible from franchisees, and then when the time was right, decided to take the company public and exit their investment for the highest price possible. The structure of the deal, with the tax receivable agreement, the controlled release of shares to the public, the special dividend, and the way they account for equipment revenue, seem like a carefully planned strategy by clearly some sophisticated investors. It's almost a textbook example on maximizing value extraction. With an understanding of how brilliantly TSG has managed this exit, I would probably expect another quarter or two of aggressive growth targets and maximizing non-recurring income which most people view as real income, as they push to keep the growth story momentum going before they unload their final tranche of equity onto the public. But my guess is that once they are out of the loop, we will see some serious moderation in growth.


Based on using what we feel are very generous assumptions, and correctly understanding that the large part of their income which is non-recurring should not be capitalized or valued with a multiple, results in a value for the stock of $9.40 per share versus the $21.70 where it trades at today. Finally, just on pure principle, I would never own a company that was subject to a tax receivable agreement, but assuming you are okay with it, the valuation is still extremely high. Buy a gym membership, it's a good deal - but run away from the stock.

Disclosure: I am/we are short PLNT. "