A Planet Fitness Inc. gym in New York City.
Photograph by Bloomberg via Getty Images
By Lucinda Shen
March 9, 2016

This story has been updated to include the response of Planet Fitness CEO Chris Rondeau.

When shares of Planet Fitness (plnt) tanked as much as 14% after-hours Tuesday, many traders were scratching their heads.

The gym franchise’s annual forecast and fourth-quarter results had been above expectations from weeks earlier. In fact, several analysts had upgraded their price targets for Planet Fitness in the past few months.

The damage came from short-seller Ben Axler, the head of a relatively small hedge fund called Spruce Point Capital Management, who called the company a “glorified equipment reseller” during a conference in New York City Tuesday afternoon.

Axler revealed he was short on Planet Fitness during the Harbor Investment Conference, reported Business Insider, and set a price target for shares at $8—a 42% decrease in the stock.

He then unloaded a deluge of critique regarding the company’s operations, called its business strategies “questionable,” revenue goals “unachievable,” and its operating margins unsustainable.

Shares recovered somewhat Wednesday, but were still down 7% in morning trading.

 

Planet Fitness is also situated within an industry that is becoming increasing crowded with no barriers to entry, Axler said. Gaining market share in such an environment would be difficult.

On Wednesday, Planet Fitness CEO Chris Rondeau defended his company in a statement to Fortune: “As one of the largest and fastest-growing franchisors and operators of fitness centers in the U.S., the business has never been stronger. ” He added that the company was “asset light” and differentiated from others in the industry.

The company reported adjusted fourth-quarter earnings at 17 cents a share on revenue of $105.8 million on March 3. That’s against analyst expectations of 15 cents per share on revenue of $95.9 million.

Recently, Rondeau stated he believes the Sports Authority bankruptcy could be beneficial to his expansion plans.

“We have already got the list of stores [ for sale] from Sports Authority, so we are looking at some of those and any other retailers that are downsizing or closing,” Rondeau told TheStreet.

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