CNBC’s Jim Cramer on Thursday analyzed the investment case for new public group Life Time, saying he believed the high-end gym chain was offering investors “decent risk-reward” after its somewhat under IPO. radar.
Minnesota-based Life Time closed Thursday’s session at $ 17.75 per share, slightly below the $ 18 that the company sold 39 million shares when it went public. It was in the lower end of Life Time, and it raised $ 702 million.
“I think the gym business is working as the delta variant goes down, and because the Life Time Group IPO failed today, you’re actually getting a decent risk / return here with great management.” said the host of “Mad Money”.
Cramer said one of her biggest concerns with Life Time was her balance sheet because, as an equity-funded company, it has “a lot of debt.”
“The company will still be in heavy debt,” even after the proceeds of the IPO have been used to clean up the balance sheet, Cramer said. “Not great, but not great.”
On the bright side, Cramer said he liked Life Time to be “solidly profitable” before the coronavirus pandemic hit the fitness industry and forced people to ditch their gym memberships in favor of home workouts. “If Life Time can really get back to where it was in 2019, then it’s an attractive business, and they have a lot of catching up to do.”
The number of Life Time members remains below pre-Covid levels, standing around 767,000 at the end of July against around 854,000 at the end of 2019, according to its IPO prospectus. However, this is an improvement from the 501,000 members the company had at the end of 2020.
Regarding the valuation, Cramer said his estimates at the bottom of the envelope suggest that Life Time could post around $ 345 million in EBITDA next year, which is a corporate multiple of 14. .
“Compare that to Planet Fitness.… This has a corporate multiple of 27,” Cramer said. “Now, unless our estimates for this company turn out to be far too generous, that means Life Time Group is the cheapest stock. It’s enticing.”
Life Time Fitness was previously a publicly traded company before going private about six years ago. Cramer recalled that he recommended the stock at the time, and “it was a huge winner.”
“Now he’s back with the same great management so I bet it’s going to be a great growth story, especially as the world reopens,” he said.