Smartfit: Record EBITDA, Flat Per-Club Revenue, and an 8% Selloff That Creates Value

Upgrade to Buy — the selloff has gone further than the business warrants.

Smartfit reported Q2 2026 results on August 6 that, on paper, are the strongest the company has ever produced. EBITDA hit a record R$712 million. Gross margins expanded to a record 51.9%. Revenue grew 22% year-over-year to R$2.2 billion. And the stock fell 8.3%.

The market punished a rounding-error revenue miss — R$2.2 billion actual versus R$2.22 billion expected — and used it as an excuse to reprice near-term growth concerns. That's a reflex worth respecting, but the operating metrics suggest the valuation reset has outpaced any real business deterioration. The stock is now trading at multiples that make it a Buy, provided the flat per-club revenue trend isn't a structural problem in disguise.

What the numbers actually show

The Q2 headline is operating leverage. Cash gross profit grew 24% year-over-year to R$1.1 billion, outpacing the 22% revenue growth. EBITDA margin widened to 32.7%, up half a percentage point year-over-year, and the LTM (last twelve months) EBITDA margin sits at 32.0% on R$2.6 billion.

Mature clubs — those operating 24 months or longer — continue to produce. They maintain gross margins near 51% and generate R$2.4 million in annualized cash gross profit per location. The 2024 vintage clubs have already reached 55% gross margins, which suggests the unit economics are improving, not deteriorating, as the model matures.

The compression that matters is in owned-club gross margins, which dipped to 49.0% from 50.3% year-over-year. That's not a demand problem; it's a mix problem. With 66% of the 1,746 owned clubs now mature and 352 new clubs opened over the last twelve months, a growing share of the portfolio is in ramp-up phases where margins are lower. As those clubs age into maturity, the owned-club margin should recover toward its historical range.

Net income tells a different part of the story. Recurring net income grew only 8% year-over-year to R$204 million, with the margin compressing to 9.4% from 10.6%. The drag came from higher financial expenses and an elevated effective tax rate, both tied to funding the expansion. That's a real cost of the growth strategy, but it's structural noise, not a sign the underlying operation is weakening.

The concern: flat per-club revenue

The metric that should keep investors awake is average annualized net revenue per owned club, which remains flat at R$4.5 million. Smartfit added 352 net new clubs over the last twelve months while total network revenue grew 22%. The math here is simple: the growth came from more locations, not from filling existing ones more effectively.

That matters because a model that grows only by opening more stores eventually runs into real estate constraints, cannibalization, or saturation. Management acknowledges the issue and is testing two fixes. The company introduced a TP2+ pricing tier at R$149 and is trialing price increases above 10% on its premium "Black" plan in select Brazilian and Mexican locations to test demand elasticity. If those increases hold without triggering churn, per-club revenue has room to climb. If members defect, the low-cost positioning that drives Smartfit's brand becomes a liability.

TotalPass, the aggregator platform that lets users access competing gym brands, provides a second growth engine. The B2C user base hit 2.2 million, up 70% year-over-year, with a 35% market share in Brazil and 21% in Mexico. TotalPass contributed 11% of net revenue and 17% of cash gross profit, with the "Others" segment (primarily TotalPass) running an 84.7% gross margin. That margin figure is unusually high for a platform business and reflects the low incremental cost of adding aggregator users once the platform is built. TotalPass is the closest thing Smartfit has to a scalable, asset-light growth lever.

Valuation: where the case lives

This is where the rating changes. Smartfit's enterprise value stands at approximately R$12 billion (after adding R$4.6 billion in adjusted net debt to roughly R$11.3 billion in market cap), against LTM EBITDA of R$2.6 billion. That works out to roughly 4.6 times EV/EBITDA. Current market consensus puts the multiple around 5.5 times using trailing figures. Either way, the stock is trading at a multiple you'd expect from a slow-growth mature business, not one growing revenue at 22% with expanding margins.

Analyst price targets average R$31.73, with a high of R$38 and a low of R$25, versus the current price near R$20. If EV/EBITDA reverts even modestly toward 7 times — the midpoint of the range for a well-executing Latin American consumer franchise — the implied price would be roughly R$24 to R$25, or 20-25% above the current level. That's not a moonshot; it's the math of multiple expansion on a company that just set records.

The 52-week range of R$16.60 to R$27.56 puts the stock near its lows. The 8% selloff erased roughly R$1.6 billion from the market cap in a single session based on a R$20 million revenue miss — a 1% shortfall that triggered a valuation repricing four orders of magnitude larger.

Risks that keep this from a conviction bet

Three risks determine whether this is a temporary dislocation or a justified repricing.

First, per-club revenue must turn. If the R$4.5 million annualized figure stays flat through multiple quarters, the growth story collapses into a capital-intensive real estate play. The pricing tests on Black plans and the TP2+ tier are the earliest evidence points. Results from those tests should surface in Q3 and Q4 commentary.

Second, debt is rising. Adjusted net debt jumped to R$4.6 billion from roughly R$4.2 billion in Q1, as R$625 million in capex outpaced R$529 million in operating cash flow. Leverage sits at 1.78x EBITDA, which is manageable but trending in the wrong direction. Management expects maintenance capex (which spiked 73% to R$152 million) to normalize to 7-8% of revenue. If expansion capex stays at R$463 million per quarter while operating cash generation lags, net debt continues climbing and financial expenses eat into net margins further.

Third, Q3 is seasonally weak. Management flagged that both club memberships and TotalPass typically slow in the third quarter. That means near-term margin pressure is likely to persist before normalizing heading into Q4. The seasonal weakness itself isn't a structural problem, but it does mean the next print could disappoint on a sequential basis.

The catalyst clock

The near-term catalyst comes from two directions. On the pricing side, results from the Black plan increases and TP2+ adoption should appear in Q3 results, scheduled for release in early November. On the TotalPass side, continued market share gains in Brazil and Mexico — combined with that 84.7% segment margin — provide a revenue stream that doesn't require new real estate. If TotalPass moves from 11% to 15%+ of net revenue over the next two quarters, it validates the aggregator as a genuine second growth pillar rather than a supplementary channel.

Rating

Buy. The Q2 results are stronger than the market reaction suggests. Record EBITDA, expanding gross margins, a 22% revenue growth rate, and a TotalPass platform running high margins on 70% user growth — those are not the marks of a company in structural decline. The flat per-club revenue and rising debt are real concerns, but at roughly 5 times EV/EBITDA, the stock is pricing in a scenario worse than the evidence supports.

What would reverse this call: three consecutive quarters of flat or declining per-club revenue, sustained churn above replacement rates, or leverage moving past 2.5x EBITDA. Until then, the gap betweenoperating performance and valuation remains the defining feature of the stock.