Planet Fitness’s 39.8% return over the past six months has outpaced the S&P 500 by 30.4%, and its stock price has climbed to $103.77 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

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We’re happy investors have made money, but we don’t have much confidence in Planet Fitness. Here are three reasons why there are better opportunities than PLNT and a stock we’d rather own.

Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE:PLNT) is a gym franchise which caters to casual fitness users by providing a friendly and inclusive atmosphere.

In addition to reported revenue, same-store sales are a useful data point for analyzing Leisure Facilities companies. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into Planet Fitness’s underlying demand characteristics.

Over the last two years, Planet Fitness’s same-store sales averaged 7.3% year-on-year growth. This performance was underwhelming and suggests it might have to change its strategy or pricing, which can disrupt operations.

Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Over the next year, analysts predict Planet Fitness’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 17.2% for the last 12 months will decrease to 15.6%.

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Planet Fitness’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Planet Fitness isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 38.3× forward price-to-earnings (or $103.77 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in – we think there are better investment opportunities out there. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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