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Peloton: A Fallen Pandemic Darling with Faint Glimmers of Hope

Updated: Apr 7

Peloton (PTON) - ★ – Ranked #90 in Q2 2024 Mid & Small Cap Rankings

12 mo. Price Target - $5.00

For investors considering wading into the turbulent waters of Peloton (PTON), our firm's outlook is ultra negative on the beaten down stock in the near term.

However, our 12-month price target does leave a narrow window of opportunity for the bold willing to bet on a potential turnaround story playing out.

A Brief History

Peloton, the at-home fitness company known for its internet-connected stationary bikes and treadmills, rode a pandemic-fueled wave of demand for home exercise equipment to dizzying heights. Revenues soared from $915 million in fiscal 2019 to record high $4 billion in fiscal 2021 as locked-down consumers eagerly purchased Peloton's products.

However, the company's inaccurate forecasting and excessive inventory purchases left it unprepared for the dramatic post-pandemic normalization. Demand plunged, losses mounted, and the company undertook multiple rounds of layoffs and restructurings under new leadership. Peloton's market capitalization has plummeted from over $50 billion at its pandemic peak to around $1.5 billion today.

The Downward Trend

Peloton's finances remain in a precarious state as it continues burning cash while striving to reset its cost structure. In its most recent fiscal year (Q4 fiscal 2023), revenue was approximately $2.8 billion which was down 21% from 2022.

The company faces intense competitive pressures from tech giants like Apple and traditional players like Nautilus. Its balance sheet woes and brand deterioration make a turnaround extremely challenging. Subscriber growth has stagnated and equipment sales continue crashing.

Our Analysis

With a negative outlook on Peloton's ability to regain sustainable profitability soon, our models currently value the equity at around $5 per share over the next 12 months which is approximately 16% above the most recent closing (4/1/2024) of $4.28.

Key drivers that could unlock that potential upside include stabilizing the subscriber base, clearing excess inventory, and substantive cost reductions. But make no mistake - Peloton remains a speculative investment with extremely elevated risk factors at this juncture.

For investors willing to embrace the tumult, recent lows around $4 per share could represent a marginally appealing entry point. But with poor fundamentals still sorely afflicting Peloton, an ultra negative outlook continues driving our overall investment thesis on this volatile and troubled stock.

The information provided in this report is for general informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The opinions expressed in the report are our own and are subject to change without notice. We may have a position in the securities mentioned in the report, and we may buy or sell such securities without notice. Any investment decisions made based on the information in this report are solely the responsibility of the recipient. We do not accept any liability for any direct, indirect, or consequential loss arising from any use of this report or its contents.

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