Peloton Shuts Down Large Swath of Production

Fitness great Peloton (PTON) has had its share of ups and downs over the last two years. A darling of the pandemic who was occasionally mocked for its advertising, Peloton strove to make itself a force in workout circles.

However, that seems to have gone south in a hurry as the company is planning to shutter its production for the next few months. I’m bearish on the stock.

The company’s year in share price has largely been trending downward, and in recent months, at an accelerated pace. A fall-off in February that carried on into March took the company from around $155 to just over $100 in about three weeks.

The company recovered, making a push toward $125 in April. However, it couldn’t hold those gains and it slipped down to nearly $80 per share in May.

Another recovery pushed Peloton uphill, briefly breaching $125 back in June and again in July. That was when the general downward slide began. From July to October, the company engaged in a general decline.

A much more focused decline hit in November as Peloton went from just under $90 to just over $50 in the space of a week. The general decline kicked back in, getting us to today, where Peloton shares aspire to clear $30.

The latest news won’t make anyone feel better about Peloton’s chances. The company announced it would shut down production on its Bike line of stationary bicycles from February to March.

The upscale model Bike+ has already been shuttered until June. The Tread line of treadmills, meanwhile, is shut for six weeks, starting in February and going until mid-March. As for the upscale version, the Tread+, Peloton plans to produce none of these in its entire Fiscal Year 2022.

Wall Street’s Take

Turning to Wall Street, Peloton has a Moderate Buy consensus rating. That’s based on 10 Buys, 15 Holds, and two Sells assigned in the past three months. The average Peloton price target of $66.48 implies 160.8% upside potential.

Analyst price targets range from a low of $30 per share to a high of $105 per share.

Throwing a Wheel on a Stationary Bike

Easily, this is some of the most disastrous news that Peloton could put out. It’s basically announcing that its products are selling so poorly that they’re mostly just stuffing warehouses at this point.

Peloton has been working frantically to keep up with the demand seen back during the height of the pandemic. It purchased Precor back in late 2020 and it set up a new factory in Ohio back in May, with a price tag of $400 million. It even looked to hotel chains as potential new buyers of Bike and Tread gear.

Peloton knew that, at some point, the residential demand would fade out. It wanted to be ready for when that day came. The move to selling hotel chains on the Peloton line made that much clear.

It looks like, however, Peloton’s move to other markets didn’t come fast enough to sell off the excess manufacturing. Now, Peloton has to shut down its production for several weeks just to give the sales reps a chance to catch up with the surplus supply.

It doesn’t exactly help that, only days ago, Securities and Exchange Commission filings revealed that company insiders sold off almost half a billion dollars worth of stock. Worse, they did so just ahead of the latest collapse.

Concluding Views

Peloton’s reach exceeded its grasp. It produced treadmills and exercise bikes like the pandemic would never end, and no one would ever go to a gym again.

Give the company credit, it did try to branch out from the private home market with hotel chains. However, it seems that didn’t catch on. That’s quite possibly because travel isn’t what it used to be either, even now.

Peloton may be able to make a comeback one day. I’m bearish on Peloton, though, as it’s likely exhausted the low-hanging fruit and will have a tough time finding new markets. Especially now that people can go outside again.

Download the TipRanks mobile app now

​To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.