There has been a deluge of selling of stay-at-home stocks like Zoom (ZM) and DocuSign (DOCU). Perhaps the poster child of this group is Peloton (PTON).
Since January of 2021, shares have plunged from over $160 to $31, bringing the market capitalization to $10.3 billion. Note that the company went public in September of 2019 at $29 a share and raised $1.2 billion.
What now then? Well, the selling may not be over. For the most part, Peloton continues to face major problems.
So yes, I’m bearish on the stock.
Recent Performance
In 2020, Peloton faced major challenges keeping up with the influx of business. With millions of people unable to go to the gym, one of the alternatives was to buy sophisticated exercise equipment.
Peloton ramped up its capacity. Part of this included the acquisition of Precor. There was also a plan to build a new plant in Ohio.
By the summer of last year, the demand started to flag. The company aggressively discounted its merchandise and ramped up its promotions.
When the company reported its Q1 2022 report, the results were awful. Sales grew a meager 6%, which was the slowest pace since the company came public. The company also lowered its annual revenues by close to 20%, versus the prior guidance.
With inventory piling up, Peloton was burning through cash, coming to about $650 million for the quarter. This brought the cash balance to $924 million. In a couple weeks, the company went on to raise $1 billion in a stock offering.
Long-Term Issues
Peloton machines are definitely high-quality and the community is strong. However, the COVID-19 pandemic may have ultimately sped up the adoption of the addressable market. In other words, it could be extremely tough to return to the strong growth rates.
The Peloton brand has also suffered. The reboot of Sex and the City on HBO had a scene that involved the death of a main character – who died on one of the company’s machines. After this, Peloton made an online ad with the actor, Chris Noth, but it had to be taken down because of allegations of sexual harassment. Noth has denied this.
Then there was real-life tragedy — that is, the death of a child who was pulled under a Peloton Tread+. The machines were taken off the market. However, this only came after pushback from U.S. regulators.
Wall Street’s Take
Turning to Wall Street, Peloton stock has a Moderate Buy consensus rating based on 10 Buys, 15 Holds, and two Sell ratings assigned in the past three months. At $68.14, the average Peloton price target implies 117.5% upside potential.
Conclusion
When a hardware company loses its momentum, it can be tough to regain it. Some examples of this include BlackBerry (BB) and GoPro (GPRO).
This is not to say that things are hopeless for Peloton. The company has a large subscriber base of more than 2.5 million, and sizable revenues. However, getting back on track could take a while.
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