GYM (The Gym Group) provides health and fitness facilities. The ill-fated company GOAL springs to mind.
The share price is down 1.3% today to 262p, having released an RNS today on its “Small Box Format Rollout and New Credit Facility”.
Taking a look at some figures over at Stockopedia , I notice that it has reported rapid increase in revenues, from £36m in 2013 to £124m for 2018. That’s rapid growth, which I view as a source of risk.
Operating profits for 2018 were £22m, against net debt of £288m. In my view, this is far too high. I also note that its average ROCE is 2.5%.
In my view, what we have here is a company that is expanding too fast, with too much debt, earning too little return on capital. This is another GOAL in the making. Given that it has a new, higher, credit facility, however, it is not likely to be in imminent danger of collapse.
Stockopedia also notes that it is a short-selling candidate on account of its poor Z-score. Companies appearing on Stockopedia’s Altman screen (i.e. those with a poor Z-score) annualise a return of 0.2%. It is a shorting screen, so returns are expected to be bad. In fact, over the last 2 years, the FT100 is down 0.2%, whilst companies appearing on the Altman screen are down a more shocking 35.1%. So cavaet emptor!
That’s mostly an aside, though.
The fall of 1.3% suggests to me that the market is wary of the announcement, despite it being an upbeat one. The company is on a PE of 20. So, the market considers it a growth share.
Graham Neary on Stockopedia seems quite bullish on it in his Small Cap Report:
I very briefly held shares in this one, and occasionally feel a pang of regret that I didn’t have the conviction to hold on. As the linked article states, the fitness industry just keeps on growing, needing more and more sites to keep up with the demand for gyms. There is plenty of competition for GYM but it appears to be holding its own.
If you’re happy to pay up a forward PER of 20x today, this might look cheap in 2-3 years.
Neary is highly respected, so his opinion should be treated with a great deal of weight; certainly with greater weight than anything I come out with.
But this is not a share for me, for the reasons I have stated above.
Stay safe out there.