Life Time Fitness looks pretty healthy

— -- Q: What do you think of Life Time Fitness LTM for an investor looking for slow but predictable growth?

A: Life Time Fitness is trying to help you and your family fit into your jeans.

The Minnesota-based company was running about 60 sports and athletic fitness center in 13 states as of February. Life Time Fitness is trying to be more than just a gym filled with rows of treadmills and exercise bikes. Many of its centers have swimming pools with slides, basketball courts, childcare centers, spas, climbing walls and other fun and active things for the family to do. It's a interesting idea. Rather than take the kids to a pizza parlor or bowling alley, you could, in theory take them to a Life Time Fitness center where they could play in the pool, or take classes in hip-hop dancing, basketball, karate, yoga and even Spanish.

Investors seem to think it's a good idea, too. Shares of Life Time Fitness have gained 23% this year through mid-September, during which time the Standard & Poor's 500 rose just 7.1%.

But is this the stock that will put your portfolio into good health? To find out, we'll put it through the paces and subject the stock to the four Ask Matt steps:

Step 1:Risk versus reward. When you take a risk on a stock, you want to make sure you're properly rewarded. So we download the company's trading history back to 2004. During that time, it generated an average annual compound rate of return of 33%. That is exceptional, and well above the return of the Standard & Poor's 500 during the same period.

And to get that return, you accepted relatively moderate risk of 12.8 percentage points.

This stock's volatility has been pretty average and the returns have been outstanding. So far, this stock looks to fit your criteria and probably explains why you own it. There's just one giant caveat. We're basing this analysis on just three years of data, which is not even close to being an adequate sample. Many think you need at least 20 years before this analysis is meaningful.

Step 2:Measure the stock's discounted cash flow. Some investors decide if a stock is pricey by comparing its current stock price to the present value of its expected cash flows. It's a complicated analysis made simple with a system from NewConstructs. When we run the stock, though, it's not available in the NewConstructs database. The company doesn't have adequate data available.

So, instead, we'll use this Discounted Cash Flow Calculator from MoneyChimp. You can enter the company's earnings per share over the past 12 months, which was $1.57. Next, you enter the stock's expected growth rate over the next five years of 25%. Lastly, enter an 5% annual growth rate in year six and beyond and a 10% return available from the Standard & Poor's 500. Click the calculate button and the site says the stock is worth $74.18, making it look reasonable next to the current price of $60. You might try the same analysis using cash flow instead of earnings.

Step 3:Compare the current valuation to the historical range. You can see how a stock's price-to-earnings ratio (P-E) stacks up against its historical range to determine if it's a buy or not. BetterInvesting's Stock Selection Guide can help you. If the analysts are right and the company grows 25% a year the next five years, that would put the stock in the "buy" range.

Step 4:Check the company's financial health. Before investing in any company, you want to make sure it's in good financial shape. A quick way to check is running it through the USA TODAY Stock Meter. Life Time Fitness scores riskier than average 3.8 here. You can get a Stock Meter score for almost any stock by going to money.usatoday.com and putting the stock's ticker symbol or company name into the Get a Quote box.

My bottom line? If you were looking for a stock with the potential to provide steady and strong growth, you've certainly found it for now. It's hard to knock this stock based on the four things Ask Matt readers look for. My only caution would be to remember this is an individual stock. And, contrary to what the last four years of trading history may indicate, individual stocks tend to be a lot riskier than a diversified basket of stocks.

If safety is a concern, you might strongly consider adding a diversified investment to your portfolio to go along with your Life Time Fitness stock. If anything happens to disrupt this company's steady growth, you can expect investors to punish it severely. This is one of those stocks that's riskier than it appears.

Matt Krantz is a financial markets reporter at USA TODAY. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com.