PART 1— Why FitEasy is our largest position 1/2

Ticker: $212A.T $212A #212A
Have you ever seen a company trading at roughly 11x EV/EBIT, growing earnings by around 60% YoY, expected to continue compounding at roughly 30% annually over the coming years, consistently beating guidance, operating in an underpenetrated market, while still being almost completely uncovered by analysts?

We have. It is currently the largest core position in our portfolio.
And despite the stock appreciating after the latest results and guidance increase, we continue to hold our full position and even added meaningfully before the latest earnings release. Here’s why.

Before we dive in, one quick announcement.
This will likely be the first and last time we publish one of our full investment deep dives here on X.
Going forward, we’re planning to publish our detailed research, complete valuation models, portfolio updates, new positions, channel checks and multi-thousand-word investment theses on our Substack. If you enjoy deep fundamental research on global small caps, compounders and special situations, we’d love to have you join us there.
👉 substack.com/@arboratorcapi…

We increased our position before earnings

A few weeks before the latest results we decided to significantly increase our position, cca 14 % of our portfolio on the cost basis.
This wasn’t because we expected a “good quarter.”It was because we believed the market was dramatically underestimating what management would have to do with guidance.
Unlike many companies, FitEasy publishes monthly membership data. That gives investors a real-time picture of demand.
By the end of May, the company had already reached roughly 274,000 members, while management’s full-year target was 300,000 members with approximately five months still remaining in the fiscal year.
In May alone, FitEasy added roughly 15,000 new members.
When we looked at those numbers, it became increasingly difficult to construct a realistic scenario in which management would not raise guidance. Even if monthly member additions slowed materially, the company would still likely exceed its original targets.
That was one of the main reasons we increased our position before earnings.
The company subsequently did exactly what we expected:
•raised guidance,
•increased dividend,
•increased payout ratio,
•raised profit expectations by more than revenue expectations.
In our opinion, that last point is actually the most important.
It supports what has been the core of our investment thesis from the very beginning:
FitEasy’s earnings should grow faster than revenue.

Yet the stock is actually cheaper today

One thing surprised us after the earnings release.
Although the stock initially reacted positively, the subsequent pullback means the company is now trading at an even lower multiple than before the guidance increase.
In other words:
the business became more valuable…
yet the valuation became cheaper.
We rarely see situations where:
•fundamentals improve,
•management raises guidance,
•dividend increases,
•earnings expectations increase,
while valuation simultaneously compresses.
That combination is exactly what attracts us as long-term investors. PART 1— Why FitEasy is our largest position 2/2
 
Why we believe the market still misunderstands the company
Most investors currently view FitEasy as simply another gym operator. We think that’s the wrong framework.
In our opinion, FitEasy should increasingly be viewed as an asset-light franchise platform with multiple embedded growth engines rather than a traditional fitness chain.
Even more importantly, we believe the market is focusing on today’s reported margins instead of understanding how the revenue mix is likely to evolve over the next several years.
That distinction changes everything.
Today, lower-margin equipment and development revenue represents a significant portion of sales because the company is opening new locations at an extraordinary pace. Many investors therefore conclude that margins are unlikely to improve significantly.
We believe exactly the opposite.
As the installed franchise base grows, recurring franchise royalties should represent an increasingly larger share of revenue. Those revenues carry dramatically higher margins. That means operating profit should compound materially faster than revenue.
Interestingly, the latest guidance revision already points in exactly that direction.

We believe management continues to guide conservatively

One observation we’ve made over the past several years is that management appears consistently conservative when setting expectations.
This year wasn’t the first example.
Last year management also raised guidance during the fiscal year after originally setting fairly conservative expectations. The pattern repeated again. That doesn’t necessarily mean management intentionally underpromises.
It simply means the market may be relying too heavily on official guidance instead of independently modeling what the business could actually earn.
This is particularly important because FitEasy has very limited analyst coverage. Effectively, management guidance becomes market consensus.
If management starts from conservative assumptions, consensus starts from conservative assumptions as well. That creates opportunities.

Why this is our largest core holding

Our investment philosophy is fairly simple.
We look for businesses where:
•the underlying company compounds for many years,
•valuation remains attractive,
•and the market misunderstands one or more structural drivers.
FitEasy checks every box.
Today the company trades at roughly 11x EV/EBIT, despite growing substantially faster than most listed fitness companies globally.
Even more importantly, we believe several structural drivers have not yet begun contributing meaningfully to earnings.
Those drivers include:
•expanding franchise royalties,
•increasing monetization of existing members,
•AI-enabled services,
•higher-margin ancillary services,
•operating leverage,
•and a rapidly expanding ecosystem.
The market is mostly looking at today’s gym business.
We are trying to understand what this company could look like three to five years from now. That difference in perspective is why FitEasy remains our largest position.
In the next part we’ll explain why Japan may currently be one of the most attractive fitness markets globally, why penetration still remains dramatically below Western countries, and why we believe the industry’s runway is much longer than investors currently appreciate.