Jim Cramer sees 'decent risk-reward' in Life Time after the gym chain's IPO

• CNBC's Jim Cramer said he believes Life Time Group offers investors a "decent risk-reward" following its somewhat under-the-radar IPO.
• "I think the gym business works as the delta variant subsides," the "Mad Money" host said.
• Cramer said one of his biggest concerns about Life Time was the company's debt load.

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CNBC's Jim Cramer on Thursday analyzed the investment case for newly public Life Time Group, saying he believes the high-end gym chain offers investors a "decent risk-reward" following its somewhat under-the-radar IPO.

Minnesota-based Life Time closed Thursday's session at $17.75 per share, slightly below the $18 at which the company sold 39 million shares in its initial public offering. That was on the low end of Life Time's range, and it raised $702 million in the deal.

"I think the gym business works as the delta variant subsides, and because Life Time Group's IPO fizzled today, you're actually getting some decent risk-reward here with great management," the "Mad Money" host said.

Cramer said one of his biggest concerns with Life Time is its balance sheet because, as a private-equity-backed company, it has "a lot of debt."

"The company will still have a big debt load," even after proceeds from the IPO are used to clean up the balance sheet, Cramer said. "Not terrible, but not great."

On the positive side, Cramer said he likes that Life Time was "solidly profitable" before the coronavirus pandemic slammed the fitness industry and caused people to ditch their gym memberships in favor of at-home workouts. "If Life Time can really get back to where it was in 2019, then this is an attractive business, and they've got a lot of catch-up room."

Life Time's membership count remains below pre-Covid levels, sitting around 767,000 at the end of July compared with roughly 854,000 at the end of 2019, according to its IPO prospectus. However, that's an improvement above the 501,000 members the company had at the end of 2020.

With respect to valuation, Cramer said his back-of-the-envelope estimates suggest Life Time could post around $345 million in EBITDA next year, which works out to an enterprise multiple of 14.

"Compare that to Planet Fitness. … That's got an enterprise multiple of 27," Cramer said. "Now, unless our estimates for this company turn out to be way, way too generous, that means Life Time Group is the cheaper stock. That's enticing."

Life Time fitness was previously a publicly traded company before it went private roughly six years ago. Cramer recalled that he recommended the stock back then, and "it was a huge winner."

"Now it's back with the same tremendous management, so I'm betting it will be a great growth story, especially as the world reopens," he said.

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