A gain of 36.68% in 2019 for shares of Planet Fitness, Inc. (PLNT) tells a story of a stock gaining alongside a high amount of unusual trading activity. It's bullish activity because the shares are heading higher on increasing volumes, indicating that a buyer is involved. Over time, we've learned how stocks with a history of strong fundamentals tend to rise in price. Smart money managers are always looking to bet on the next outlier stocks … the best in class.

The main criteria we look for when betting on upside in a stock bouncing after a period of pressure is a history of strong fundamentals, strong technicals and big potential buying in the shares. I'll go into the fundamental picture later, but the true tell on the near-term trajectory of a stock lies in the trading activity of the shares. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall.

For most of 2019, Planet Fitness stock has been in an uptrend accompanied by unusual buy signals. Many consumer discretionary stocks show the same activity, so we are confident that we are betting on a strong stock in a strong sector. It's all about stacking the odds in your favor.

For Mapsignals, when we look for an entry on a leading stock, we want to see an increase of potential buying. Just to show you graphically what our unusual trading activity signals look like, have a look at all of the unusual institutional (UI) signals Planet Fitness stock has made over the past year. Beginning this year, there have been days where the shares appear to have had a buyer. This is notable because stocks move based on supply and demand. What is really catching our eye now is the recent UI buying. You can also see how 2018 also shows a lot of buying. Seeing a theme of bullish activity is very encouraging for further potential upside:

Chart showing the unusual institutional (UI) signals made by Planet Fitness, Inc. (PLNT)
www.mapsignals.com 

In 2019, Planet Fitness stock has logged 12 unusually high-volume days, indicative of buying in the shares starting on Jan. 8, 2019 (see chart above). This points to Planet Fitness stock gaining in an unusual way, which suggests that demand for the stares is increasing.

If you are going to make a bet on the direction of the stock, it is prudent to pay attention to how the shares are trading. Just like you don't want to fight the trend, you also don't want to fight a stock that shows increasing price alongside an increase in the volume traded. Someone could potentially be accumulating a position.

Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

When we decide on a strong candidate, we consider prior leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. The following are a few areas in which Planet Fitness stock has grabbed our attention year to date (YTD):

  • YTD outperformance vs. market: +20.15% vs. SPDR S&P 500 ETF (SPY)
  • YTD outperformance vs. sector: +16.53% vs. Consumer Discretionary Select Sector SPDR ETF (XLY)
  • Recent bullish unusual trading signals

Now, we take it a step further and score the best stocks showing unusual trading activity. Below you can see the historical times since 2018 when Planet Fitness made the top 20 report for Mapsignals. These are the highest-rated signals in our stock universe. Clearly, we caught the big run-up beginning in 2018. That's exactly what our process is designed to do. We'd even venture to call this stock an outlier:

Chart showing the top-rated buy signals made by Planet Fitness, Inc. (PLNT)
www.mapsignals.com


On top of a technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Planet Fitness showed year-over-year (YoY) growth:

  • Q4 2018 YoY revenue growth rate: +30.1%
  • Q4 2018 YoY adj. net income growth rate: +38.2%

Planet Fitness stock is breaking out recently on increasing volumes. We believe that the current level for the shares is in position for further upside. The narrative for Planet Fitness is one of dominance in the fitness space. We are always on the lookout for great companies showing usual trading activity in the shares. The best companies tend to trend higher over the long run. All of this points to a long-term opportunity for the stock.

The Bottom Line

Planet Fitness stock represents a potential buying opportunity for the long-term investor. Given the lift in price, growing fundamentals and recent unusual buying signals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: The author holds no position in Planet Fitness shares at the time of publication.