As with most IPO's, Planet Fitness (PLNT: $16/share), home of the $10-a-month gym membership, is going public at a time when business is booming and sentiment is strong. It is one of the largest fitness centers in the country and boasts rapid store, membership, and revenue growth. Management and Wall Street tout plans to keep up the strong performance across all fronts by continuing to leverage the firm's franchise business model.

The stock gets our Neutral rating, and we advise caution when considering this IPO because:

What You See Is Not What You Get From This IPO

The 13.5 million shares offered at IPO only have a 14% voting interest and 38% economic interest in the business operations of Planet Fitness. The remaining economic and voting interest will be split between previously-issued A and B shares and “holding” units owned by members of TSG Consumer Partners. Due to this corporate structure, the “holding” units and B shares, which can be converted to A shares at any time, are included when computing Planet Fitness' shares outstanding. This inclusion raises PLNT shares outstanding to over 98 million, greatly impacting IPO investors' share of the company.

Strong History Profit Growth Looks Unsustainable

Unlike many other recent IPO's such as Etsy (ETSY) or GoDaddy (GDDY), Planet Fitness actually makes money.

Over the past two years, Planet Fitness has grown after-tax profit (NOPAT) from $48 million to $72 million, which represents 50% growth year over year. NOPAT margin has increased from 23% to 26% and return on invested capital (ROIC) has improved from 8% to 12% over the past two years as well.