The coronavirus outbreak has forced me to revisit my bullish take on The Gym Group (LSE: GYM). I still like the stock’s low-cost model. It’s been the fastest-growing segment of the UK fitness market in recent years. And it is likely to become more and more relevant as the domestic economy slips into a painful contraction.
I fear that the number of people signing up to and working out in its fitness centres could struggle in a post-coronavirus landscape, though. Quarantine measures which forced the closure of gyms and promoted home workouts instead threaten to have a serious effect across the whole industry.
A survey recently conducted by GlobalWebIndex (GWI) illustrates this point perfectly. More than 40% of respondents said that they plan to do in-home exercise more regularly following the pandemic. And the market research specialist says that the number of people doing just that has remained robust even as restrictions were eased in April, “showing that enthusiasm to keep up with them isn’t waning even as more countries move into the recovery phase”.
City analysts expect The Gym Group to be loss-making in 2020 but to bounce back into the black in 2021. It’s quite possible, but I fear that the blockbuster profits-making potential of this small-cap stock in the coming years has taken a serious whack. A premium forward price-to-earnings ratio of around 21 times fails to reflect this, too. I’m quite happy to avoid the leisure play at current prices around 170p per share.
I’d buy this stock instead!
I’d be much happier to splash the cash on Urban Logistics REIT (LSE: SHED). This business provides the gargantuan buildings needed for the storage and distribution of goods. It is therefore indispensable to the e-commerce sector. And demand for its sites will receive an extra boost following the coronavirus outbreak.
Shopping restrictions in the wake of the pandemic have provided a boon to the online shopping sector. New users have joined in droves and it has reinforced the habit among existing web shoppers, too. It’s a phenomenon that will have long-reaching implications, too, as that aforementioned GlobalWebIndex report also illustrates.
Some 46% of respondents to its May survey said they now plan to do more of their shopping via cyberspace. This is up three percentage points from April’s report. Moreover, members of the critical ‘Generation Z’ demographic, along with higher income citizens, are most receptive to shopping online more often in future, GWI says.
The trading landscape seems to getting more and more favourable for firms like Urban Logistics, then. The stock is planning to exploit this backdrop to its fullest though constant expansion, too, and in late April bought seven distribution hubs (known collectively as ‘The Crown Portfolio’) for around £50m.
Urban Logistics commands a meaty forward P/E ratio of around 19 times at current prices around 135p per share. But I reckon this is a fair reflection of its mighty long-term profits picture. Besides, a chunky 4.6% dividend yield helps to take the edge off. I reckon this is a brilliant stock to buy for a post-coronavirus world.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended The Gym Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.