In contrast to me, my Shares and Shares ISA may do with fattening up. In addition to shed some pounds, one in every of my New Yr’s Resolutions is to get out of my consolation zone and think about investing in a wider vary of corporations. Traditionally, I’ve remained loyal to FTSE 350 shares.

However after a interval of stable – albeit unspectacular – capital development, I’m going to solid my funding web a little bit wider this yr.

Piling on the kilos

One inventory I lately got here throughout was The Health club Group (LSE:GYM). It provides ‘cheap and cheerful’ health club membership. Consider it because the Premier Inn of health golf equipment.

It has a horny enterprise mannequin. Customers pays month-to-month and are subsequently free to go away at any time. The group’s 240+ gyms are open 24/7. It at present claims 900,000 members (February 2021: 547,000) who seem to price their expertise extremely.

Planning to capitalise on this over the following three years, the group intends so as to add an extra 50 gyms to its portfolio. Impressively, it’s intending to do that utilizing its surplus money. There are not any plans to borrow (or method shareholders) to fund this enlargement.

And there may very well be extra gyms to observe. With 10.3m individuals visiting one a minimum of yearly, the UK well being & health market’s now price £5.4bn.

Encouragingly, traders seem to love what they see. The corporate’s share price elevated by almost 50% in 2024.

Nonetheless, wanting again to the beginning of 2019, it’s down 48%. Unsurprisingly, the pandemic wasn’t form to the enterprise. The preliminary lockdown noticed its share price fall by over two thirds. It misplaced 45% of potential buying and selling days because of authorities restrictions.

However the shares are actually 60% greater than their post-pandemic low. This sounds very constructive to me.

Alternatively…

However I’ve some issues. Regardless of its spectacular development, it stays a small enterprise.

Its market-cap’s at present round £274m, which makes it weak to an financial slowdown (or one other pandemic). Though the UK economic system’s anticipated to develop in 2025, current monetary information’s been disappointing. Shopper confidence seems low, which is a fear to me.

I’m additionally involved that the corporate’s going to desert its low-cost mannequin. It says it’s £2 a month cheaper than its closest rivals and needs to slim this hole as a result of its members “ascribe a higher value to their gym membership than they currently pay”.

But when it turns into like all of the others, I concern it’ll discover it more durable to compete efficiently. 

The core downside

Nonetheless, my largest concern is that the corporate’s barely worthwhile. In the course of the six months ended 30 June 2024, it reported a post-tax revenue of solely £200k.

Analysts are forecasting a loss for the total yr. The scenario’s then anticipated to enhance in 2025, with an anticipated revenue earlier than tax of £3.1m. Nonetheless, primarily based on present company tax charges, the inventory’s at present valued at 118 occasions its forecast 2025 post-tax earnings. Ouch!

It subsequently seems to me as if a lot of the corporate’s development potential has already been factored in to its share price.

I’m subsequently not going to take a position proper now. However I shall proceed to think about different smaller (cheaper) corporations so as to add to my Shares and Shares ISA.