GYM Group (LSE: GYM) has staged an impressive recovery since hitting a low of 84p in April 2023, climbing to around 200p and delivering gains of approximately 138%.
Despite that strong run, the stock remains well below its all-time high of 334p, reached in 2018 before the pandemic devastated the global fitness industry.
City analysts are unanimously bullish on the low-cost gym operator, with all nine analysts covering the stock rating it a Buy and their average 12-month price target sitting 31% above the current share price.
The company recently reported its results for the first six months of the financial year, receiving a positive market reception that pushed the stock up 6.7% on the day of release.
Revenue climbed 10% to £133.1m, driven by a 5% increase in memberships combined with a 5% rise in average revenue per member per month, helping the group cross the milestone of one million members.
First-half adjusted pre-tax profit surged 31% to £6.4m, while adjusted earnings per share jumped 21% to 2.9p, signalling improving profitability across the business.
Free cash flow of £27.7m funded four new site openings, upgrades to existing gyms, and £3m of a proposed £10m share buyback programme, demonstrating strong cash generation.
The company ended the period operating 264 gyms, representing 7% year-on-year growth, with plans to open at least 20 more sites while eyeing additional locations for 2027.
Management stated: “Both our new and mature sites are performing strongly, increasing confidence that we will deliver ROIC of at least 30% across our site portfolio.”
For the full year, management is guiding for 3% like-for-like revenue growth, with like-for-like cost growth expected at the lower end of the 3%-4% range, and adjusted EBITDA Less Normalised Rent targeted at the top end of analyst expectations of £60.5m to £62m.
A structural tailwind is emerging from the rapid uptake of GLP-1 weight-loss drugs, with the number of users expected to swell to around 7 million by next year, potentially boosting gym attendance further.
A recent study by PwC found that GLP-1 users are spending more on fitness both during and after treatment in order to preserve muscle mass, adding a meaningful structural growth driver to the sector.
PwC also estimates there is room for an additional 600 to 850 low-cost gyms across the UK, suggesting GYM Group has a long runway of organic expansion ahead of it.
At 35 times forward earnings with no dividend on offer, the stock is not cheap, but forecasts point to earnings per share growth of between 15% and 20% through to 2028, which justifies the premium for growth-focused investors.
