Will Fitness Plays Sports Direct International PLC & Gym Group PLC Sprint Higher?

Make no mistake: Britain’s rampant fitness craze, driven by a combination of rising health awareness and our enduring quest for aesthetic perfection, is not likely to ‘hit the wall’ any time soon.

Trainer and tracksuit giant Sports Direct (LSE: SPD) has been a huge beneficiary of Britons’ galloping demand for sportswear, the business having seen earnings surge at a compound annual growth rate of 23.3% during the past four years alone.

And the City does not expect this momentum to stall any time soon — Sports Direct is predicted to enjoy further bumps of 11% and 15% in the years to April 2016 and 2017 respectively, driving a current P/E ratio of 16.4 times for the current period to 14.4 times for fiscal 2017.

Picking up the pace

Even though shares in the Mansfield business have recovered much ground from October’s heavy weakness — Sports Direct shed 16% of its share value in less than a fortnight last month — I believe the stock still provides plenty of value for money at these levels.

Like budget supermarkets Aldi and Lidl, Sports Direct understands that people demand much more bang for their buck, and consequently remains committed to keep flogging its products at bargain-basement prices. The retailer’s ‘discount’ brands like Dunlop, Lonsdale and Karrimor have remained resolutely popular with British shoppers, and Sports Direct has invested huge sums into the marketing and in-store positioning of these labels to maximise sales.

The firm has not neglected the needs of the more label-conscious shopper, however, and top-tier brands like Nike and Adidas are a stalwart of the company’s shelves. Indeed, last year Sports Direct developed its Glasgow flagship store in tandem with US sports giant Under Armour.

But Sports Direct is not content to rest solely on the retail side, and the company purchased 25 LA Fitness gymnasiums last year, taking its portfolio of fitness facilities to 27. And a backdrop of growing gym memberships is likely to result in further expansion at its Fitness division, in my opinion.

Exploding off the line

Like Sports Direct, treadmill trade The Gym Group (LSE: GYM) has seen sales rocket in recent years. From opening its maiden facility in London in the summer of 2008, the company now operates 66 gyms across the country and has a membership base of some 363,000 fitness fanatics. And the business plans to open another nine outlets in the near future.

The Gym Group’s approach of offering 24-hour, seven-days-a-week access to its users is clearly cooking up a storm in an environment of flexible working hours and changing lifestyles. And critically, the company’s model of offering ‘no contract’ membership schemes and cheap workout sessions is allowing it to run rings around premium-priced rivals like Virgin Active.

The company launched on the London Stock Exchange earlier this month, and I believe the stock is definitely one to watch. The Gym Group is the second-largest low-cost chain behind Pure Gym, which operates more than 90 facilities nationwide.

Although competition in this segment continues to intensify, I believe The Gym Group’s aggressive expansion policy — not to mention the benefits that industry veteran chief executive John Treharne brings to the table — could deliver stunning returns in the years ahead.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.