Below 55%! Should I buy this FTSE Small Cap Action £ 1.36?

A stock of FTSE small capitalization The index that has been constantly recovering in recent years is The gym group (LSE: Gym). Now at 136p, the actions of the budget gyms chain have increased 63% from a minimum post-pandemic of 83p in April 2023.

However, expanding a little more, the action has still dropped 55% from a maximum of 307p in June 2021. If they were reaching that price again, an investor could double their money when investing today.

Is this a stock that can pump my wallet? Let's take a closer look.

Solid set of results

For those strangers, the company was a pioneer of the low -cost gym model, offering access 24 hours a day, 7 days a week and flexible and contracting membership. I used to be a member a few years ago and my gym was spacious with suitable equipment for the equivalent of less than £ 5 per week. Ganga things.

Today (March 12), we obtained the report of the whole year of the group by 2024, and there was a lot to like. Income grew 11% year after year to £ 226.3 million, driven by an increase in both membership numbers and prices.

Members increased 5% to reach 891,000 by the end of the year. And 12 new sites were opened (half in London), at the upper end of the guide, which carries the total number of gyms to 245.

Meanwhile, profitability improved significantly, with the company swinging to a profit gain of £ 2.5 million compared to a loss of £ 8.3 million in 2023.

We have just passed through the months of maximum recruitment in January and February, when the motivation to sweat those additional Christmas kilos is still high. Therefore, it is encouraging that management says that income during the first two months of 2025 grew by 8%. Similar income increased by 3%, while membership at the end of February was 951,000.

Looking towards the future, the company plans to open 50 new sites in the next three years, including up to 16 gyms this year. This expansion will be completely financed through free cash flow.

With the cost of cost of living still in progress, I would not bet against the members of 1m+ in the future.

Should I buy Gym Group shares?

The action price ratio is only 1.1, which is not particularly expensive. On this basis, the valuation looks decent, although the net profit margin is Razor-Fin armchair. It would not take much, the increase in costs or other pandemic style event, put the group back in a loss territory.

Last year, the net debt was reduced by £ 5.1ma £ 61.3m. But that is even higher than before Covid, when it was located at £ 47.4m.

The company has been increasing prices to improve income by member. Last year, the average price of its standard membership increased 6% to £ 24.53. However, my concern with this is that there could be a limited price power from now on due to implacable competition.

Speaking personally, I have several different gym options within a radius of five miles, and almost all offer memberships without contracts and half are open 24 hours, 7 days a week. The monthly price of my local leisure center, with its two pools, is not much more than the location of the nearest gym group.

This well -managed company is working well and the shares could have more to work. But weighing things, I'm not going to invest. I prefer companies with distinctive and lasting competitive advantages, and unfortunately I can't find it here.