Former pandemic darling and home exercise leader Peloton (PTON) produced a string of wins of late. A string of negative news hit the company all at once, and it prompted investors to start looking for better deals.
All told, I’m bearish on Peloton. It had a great idea, and built on it wonderfully. With the huge new changes in the macro environment, it’s not looking like good conditions for Peloton going forward.
The last 12 months for Peloton have been little short of a disaster. The company broke $125 per share back in June, and managed to hold close to that for most of July. August’s arrival, though, started a downward plunge for Peloton that ultimately cost the company about 90% of its value.
The latest news, meanwhile, proves little help. The company released its earnings report, which featured massive losses, sagging revenue, and little in the way of hope. Refinitiv estimates looked for a loss of $0.83 per share in earnings. Peloton’s actual loss in earnings came in nearly three times that figure, at $2.27 per share.
Revenue proved little better, coming in at $964.3 million against the $972.9 Refinitiv expected. Perhaps worst of all, the company cut its outlook. It noted that upcoming price hikes for subscription services coupled with softening demand was likely to lead to cancellations, and reduced income.
Wall Street’s Take
Turning to Wall Street, Peloton has a Moderate Buy consensus rating. That’s based on four Buys and four Holds assigned in the past three months. The average Peloton price target of $39.86 implies 244.3% upside potential.
Analyst price targets range from a low of $28 per share to a high of $51 per share.
Investor Sentiment a Growing Concern
While there seems to be some hope on the part of analysts, Peloton recovering doesn’t look like a strong possibility based on analyst sentiment.
First, there’s the matter of hedge funds. Based on the latest word from the TipRanks 13-F Tracker, hedge funds are engaged in a multi-quarter retreat from Peloton stock. In June 2021, hedge funds held just short of 22.94 million shares. Subsequently, in September, that number dropped to just under 21.23 million shares. Ultimately, in December, that number dropped to just over 17.23 million shares.
Insider trading reveals an unusual condition. Not a share of Peloton has been bought or sold by insiders in the last three months. The last recorded transaction was one buy back in February 2022.
Retail investors, at least those who hold portfolios on TipRanks, will not save Peloton. The number of portfolios holding Peloton has fallen 0.2% in the last seven days. It fell the same amount in the last 30 days as well.
‘Borrowing Like Crazy’
According to a CNN Business article, Peloton is “borrowing like crazy.” Elaborating, the article noted that Peloton had just $879 million in cash at the end of the quarter, leaving it both “thinly capitalized” and frantically seeking out loans.
Some good news did come out of the article, however; Peloton has a turnaround plan. It’s reduced the costs of its equipment, and it’s also offering up Peloton products to third-party retailers, something that it’s never done before.
Both of these are welcome, but it’s not yet clear just what kind of impact that will actually have. Peloton made huge strides during the pandemic by being the ultimate in-home gym alternative.
That, however, was back in May 2021. Fast forward to today, and what do we find? Gyms open pretty much everywhere, most of the time without even a requirement to mask up first. Peloton now has big new factories to make products after most everyone either bought one or doesn’t need one.
Worse yet, it’s starting to poison the only real revenue stream it has left. The streaming video courses were a great idea to ensure return business from those who already bought equipment.
Hiking that expense, though — especially going into a potential recession — hands customers the perfect reason to cancel.
Concluding Views
I can’t blame anyone who wants to take a chance on Peloton. The company is trading so far below its lowest price targets that it has really only two directions to go: up, or out altogether. The odds of it recovering to its pandemic highs are virtually nil. If it can at least manage to get to its lowest price target of $28, that’s still a two-bagger and then some.
Still though; Peloton has already sold its products to most of those interested. Going to third parties for sales opportunities is a good plan, but not likely to pull appreciable new numbers. A potential recession will almost certainly limit opportunities to sell subscription training services, too. It’s not looking good for Peloton right now, and that’s why I’m bearish.
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