It hasn’t been a good year for exercise equipment maker Peloton (PTON).
The company has fought off controversies on several sides. Viewers and commentators have openly mocked its advertising. Pop culture characters keep dying on Peloton machines.
It also saw its production slashed. However, the company recently surged on big news as several other companies took notice of Peloton for a potential buy. The idea of using Peloton as a back door to potentially own shares of those companies is certainly compelling, and leaves me bullish on the sheer possibility that this represents.
Peloton’s year in share prices so far has been a wild ride. Sadly, this ride has been mostly downhill. Back in 2021, it was riding high and routinely clearing the $150 mark.
After Valentine’s Day 2021, however, that mark proved a lost cause. The company lost nearly a third of its value in the space between Valentine’s Day and March 7. Upticks, followed by declines, marked the company’s performance for months.
The company lost value much more gradually until November’s arrival. That was when the company got a post-Halloween fright that saw the company drop from around $86 per share to just over $50 in the space of a week. That deflated Peloton’s future, and the company started a slow decline that brings us to today, with another rally in progress.
The biggest news driving the latest rally is that both Amazon (AMZN) and Nike (NKE) have both expressed an interest in buying Peloton. While Peloton is significantly lower than what it traded at back when gyms were closed by state and federal mandates, the potential suitor companies aren’t particularly concerned.
Only days prior, activist investor Blackwells Capital had suggested that Peloton look into just such a sale.
Wall Street’s Take
Turning to Wall Street, Peloton has a Moderate Buy consensus rating. That’s based on 11 Buys, nine Holds, and two Sells assigned in the past three months. The average Peloton price target of $43.63 implies 47.5% upside potential.
Analyst price targets range from a low of $30 per share to a high of $70 per share.
Good News Keeps Coming
This is a solid opportunity for Peloton investors, if it goes through. Since both Amazon and Nike are trading at multiples above Peloton, if there’s a stock swap involved, that would be a huge surge to Peloton investors who would land much more valuable stock.
Indeed, some — like Wedbush analyst Dan Ives — are suggesting another potential buyer for Peloton: Apple (AAPL). Ives’ rationale is solid here; Apple has been branching out into fitness products for some time, and since Peloton also has a kind of walled-garden approach, such a move might help pull some new blood into Apple’s own culture.
Moreover, Apple’s acquisition of Peloton would keep it out of Amazon’s and Nike’s hands. That would prevent some significant new competition to Apple’s own fitness ambitions.
Further, it doesn’t hurt that Apple also trades at significantly higher prices than Peloton does. Regardless of who — if anyone — actually gets hold of Peloton, such a sale would likely be a good move.
The company recently took a lot of damage for its production cutbacks. People no longer forbidden by government mandate to go to the gym will actually do so. Peloton likely made most of its hardware sales already.
Thus, any future earnings will emerge mainly from subscription revenue from its app-based workouts. That portfolio would certainly be welcome for Amazon. It would absolutely be welcome for Apple, too. Nike makes a perfectly reasonable buyer, as it’s an athletic shoe and apparel provider. However, both Amazon and Apple have deeper pockets.
Peloton’s dividend history, or rather distinct lack thereof, suggests that getting bought out could be the best thing it does for shareholders yet.
Concluding Views
Peloton has had a brutal run of things. When television shows are depicting characters dying of heart attacks on your exercise equipment, it’s not exactly a ringing endorsement.
It’s the kind of thing that makes people reconsider a purchase. The losses from that, however, likely won’t be much trouble for Peloton. That Peloton largely front-loaded its sales for the next couple of years thanks to the pandemic, however, might do some harm.
Peloton would likely do well as part of any of those three potential buyers’ operations. That also bodes well for investors, who might have an easy access point into much more valuable stocks as a result.
That’s reason enough to be bullish. Peloton looks likely to make some significant short-term gains.
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