It’s been an incredibly painful year for stocks. The magnitude of pain has not been felt evenly, with certain pandemic-era winners among the year’s biggest losers. With Roku (NASDAQ: ROKU) and Peloton (NASDAQ: PTON) shares now around 90% from their respective all-time highs, questions linger as to what the fate of such broken stocks will be. In this piece, we’ll leverage TipRanks’ Comparison Tool to gauge where Wall Street stands and how each stock can claw its way out of the gutter. Based on upside potential alone, PTON looks more promising, but let’s dive deeper.
A swift rebound to new highs is likely completely out of the question this time, with a hawkish Federal Reserve poised to deliver another 75 basis-point (bps) rate hike following another strong job number.
Even if the Fed “pivots” next year, it’s still hard to envision a scenario that sees the likes of a Roku or Peloton returning to their prior highs anytime this decade. The damage has been done, and nothing but pessimism seems to be factored in right now.
With a lack of profits and weakening macroeconomic prospects, there’s some concern that even the hardest-hit, unprofitable growth stocks could have more room to the downside. Indeed, both Roku and Peloton have been subject to takeover rumors in recent months. No bidder has stepped up to the plate yet, but this could change as both falling knives begin to show signs of bottoming.
Roku (ROKU)
Roku is a streaming hardware maker that got investors excited in the early days of the pandemic. When lockdowns struck, the streamers took off, and Roku’s growth prospects suddenly went into overdrive in just a matter of months. The stock went on to double-up many times over until it peaked near $500 twice in 2021. Roku stock has been in free fall ever since.
After such a historic drop, questions linger as to how Roku will cope with the Fed-induced recession and the dissipation of streaming-market prospects.
Undoubtedly, Roku still sports a sizeable ecosystem of content viewers. With a move into original programming, Roku has shown it can deliver must-see content like its peers. Weird: The Al Yankovic Story is Roku’s biggest original content bet, reportedly costing around $12 million. Looking ahead, Roku has more content coming out of the pipeline. If it can continue to deliver high-rated content, there’s no question that viewers will follow. Some folks may splurge on Roku hardware to gain access to the Roku Channel.
Indeed, Roku still has a lot of levers it can pull to make the most of its extensive network (more than 55 million monthly active users as of last summer). As video streaming gravitates towards lower-cost ad-supported tiers, it will be very interesting to see how the free ad-supported Roku Channel fares. The streaming market has become fiercely competitive, but I think the valuation severely discounts Roku’s original content push.
At writing, Roku shares trade at just 2.4x sales. That’s historically cheap. However, for a company that’s reported two consecutive quarters of wider-than-expected losses in a rising-rate environment, Roku may be cheap for a reason.
Innovation investor Cathie Wood still likes Roku, even as analysts continue to lower their earnings expectations.
What is the Price Target for ROKU Stock?
Downgrades have hit the stock in recent months, but Wall Street remains upbeat, with a “Moderate Buy” rating. The average ROKU stock price target of $81.43 implies 53.4% upside.
Peloton (PTON)
Peloton is another pandemic darling that’s left a bad taste in investors’ mouths. The company is poised to reduce its workforce by 12% (around 500 employees) in its fourth wave of layoffs in 2022. Undoubtedly, Peloton is in survival mode as it looks to improve its footing ahead of a recession year.
Its new CEO Barry McCarthy is eager to “save” the company. Though recent layoffs should help the firm gain better control over its financial situation, Peloton bikes and treadmills will likely be an even harder sell once the economy falls into recession.
Indeed, a best-case scenario could see Peloton hit the “pause” button as it seeks to cap extensive losses that have helped fuel the stock’s downward spiral. Eventually, Peloton will stop bleeding out, but until then, many investors and analysts are likely to be cautious with the stock.
What is the Price Target for PTON Stock?
Wall Street has had ample opportunity to lower the bar on PTON stock over the past year. At $8 and change per share, analysts are quite bullish, with a “Moderate Buy” rating. The average PTON stock price target of $15.88 implies 86.2% upside.
Indeed, that’s a very high price target for a firm with limited catalysts. As McCarthy and company do their best to cut costs to make it through hard times, I do see a scenario where a smaller-than-expected quarterly loss could help the stock find its footing.
Conclusion: Analysts are More Bullish on PTON Stock
Roku and Peloton are beaten-down stocks that have punished dip buyers. Both names are not for the faint of heart after their large plunges. Between the two, analysts see more upside in PTON stock. It’s so beaten down that even a mildly better quarter could be enough to turn the tides.
