Life Time Fitness could see volatility after results

NEW YORK, July 21 (Reuters) - Shares of Life Time Fitness (LTM.N) could be vulnerable to weakness after a recent run-up, as investors await earnings from the gym operator Thursday morning.

After a rally of more than 60 percent since its February intraday low, the stock has traded in a tight range in recent months as it consolidates those gains. However, a significant amount of bearish bets against the stock could add volatility after results are released Thursday.

With analysts expecting to see solid numbers from Life Time's second-quarter results on Thursday, the stock could be hurt by a "sell on the news" reaction, said Brian Nagle, analyst at Oppenheimer & Co in New York.

Analysts are expecting the company to report earnings per share of 52 cents, according to Thomson Reuters I/B/E/S.

"I think the quarter is going to be good, very much another step forward for the company. I'm just a bit concerned about how the market may react to the report in the very near term," Nagle said.

Life Time Fitness is trading at a slight premium to where it normally does heading into quarterly earnings, said Nagle. The stock's relative price-to-earnings multiple is 1.32 times earnings, the first time it has been so high prior to a release since February 2008, suggesting it might be slightly overvalued, he said.

The large amount of short bets against the stock could exacerbate moves following the release. Short interest made up 20.8 percent of shares outstanding as of last week, according to data specialist Data Explorers.

Short investors seek to profit from a falling stock, by borrowing a share and selling it in the hopes of buying it back at a lower price and pocketing the difference.

However, shorts can be squeezed out of their positions and forced to buy if the stock rallies, amplifying gains.

Since the beginning of the year, Life Time Fitness has surged about 44 percent, vastly outperforming the S&P midcap hotels, restaurants and leisure industry index .4GSPHRL, which is up about 6 percent for the year.

"On a relative valuation basis, it's gotten a little expensive. In my mind, that means it's going to be a little bit more difficult to generate outperformance," said Jaison Blair, retailing analyst at Rochdale Research in Stamford, Connecticut.

"Assuming we get a continuing consumer spending recovery, I think the stock can trade higher from here."

Positive technical signals also suggest there's more upside for shares. Momentum is in an uptrend, and the stock's daily moving average convergence-divergence (MACD), a good indicator of short-term direction, generated a strong buy alert last week.

However, shares have been in a tight range in recent months, and in such ranges technical signals can become crossed.

Life Time shares have encountered repeated resistance around $38.00, which would mark a more than 5 percent gain from where it was trading at $36.10 at midday Wednesday. It has also seen support around $33.00. (Reporting by Leah Schnurr; Additional reporting by Rodrigo Campos; Editing by Eric Walsh)