Is it dangerous to invest in Peloton Interactive (NASDAQ:PTON)? Maybe, but the stock has been backpedaling for a long time, and a bull cycle might just be getting started. Despite the risks, I am bullish on PTON stock but am only confident enough for a tiny share position.
Peloton Interactive is headquartered in New York, and the company sells interactive fitness products. Mostly, Peloton is known for its technology-infused at-home exercise bikes.
Even though Peloton Interactive has been at the center of controversy, the company has managed to survive and even forge a new partnership with a famous athletic-wear maker. Hence, after tough times and financial losses, Peloton’s loyal shareholders are probably about to enjoy some relief and, just maybe, a few profitable quarters.
Peloton Interactive: The Impact of a Tragic Incident
Peloton Interactive was a darling of the financial markets briefly in 2020 when at-home exercise equipment was all the rage due to the COVID-19 lockdowns. However, the company soon suffered reputational damage due to reported injuries and even deaths allegedly caused by Peloton’s equipment.
Sadly, there was another tragic incident in 2023. Reportedly, a lawsuit filed in state a New York court claims that a man was killed by his Peloton Interactive bike six months after buying it. On the other hand, Peloton’s position is that the man’s negligence caused his death, and the company is not legally responsible.
Either way, it’s a terrible incident that may cause concern about Peloton’s reputation. Furthermore, the lawsuit could be financially costly for Peloton. Yet, that’s not the only issue for Peloton’s shareholders to worry about, as two prominent analysts recently lowered their price targets on the company’s shares.
According to TheFly, Deutsche Bank (NYSE:DB) analyst Chris Woronka slashed his price target on PTON stock from $20 to $13, though he also maintained his Buy rating on the shares. Woronka “once again” reduced Fiscal 2024 and 2025 estimates for Peloton and predicted that the company’s progress is likely to “remain choppy.” On the other hand, Deutsche Bank apparently still believes that CEO Barry McCarthy will ultimately get Peloton “to a better place in terms of financial stability.”
An even harsher price-target reduction came from analysts with UBS (NYSE:UBS). Per TheFly, the UBS analysts lowered their price target on Peloton Interactive stock from $8 to $4 and reiterated their Sell rating on the shares. Although UBS observed a positive trend in total interactive visits to Peloton’s website in May and June, they then found that the trend turned negative in July and August.
PTON Stock Jumps on Partnership News
Clearly, it’s not difficult to find bearish sentiment surrounding Peloton Interactive. Yet, sometimes, sour sentiment can lead to positive surprises. This may be the case with PTON stock, as it gained 5.4% today.
I suspect that this will be the start of a multi-week relief rally. In a surprising move, athletic apparel maker Lululemon Athletica (NASDAQ:LULU) has agreed to a five-year global partnership in which Lululemon will be Peloton Interactive’s primary athletic apparel partner. In addition, Peloton will be the exclusive digital fitness content provider for Lululemon.
It’s a perfect fit, in my opinion, as folks who buy Lululemon’s products might also be interested in Peloton Interactive’s offerings. The two companies’ strategic partnership is set to take effect in early 2024, but since the market is forward-looking, investors are celebrating now.
Moreover, PTON stockholders should consider that Peloton Interactive is, to a certain extent, losing a rival. That’s because Lululemon has agreed to stop selling its Studio Mirror exercise screen by the end of this year. Thus, with Peloton set to become Lululemon’s exclusive provider of digital fitness content, the two companies can join forces instead of fighting over market share.
Is PTON Stock a Buy, According to Analysts?
On TipRanks, PTON comes in as a Hold based on 6 Buys, 13 Holds, and two Sell ratings assigned by analysts in the past three months. The average Peloton Interactive price target is $7.79, implying 59% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell PTON stock, the most profitable analyst covering the stock (on a one-year timeframe) is Ronald Josey of Citi, with an average return of 56.93% per rating.
Conclusion: Should You Consider PTON Stock?
Unfortunate incidents and legal actions can make it challenging for an exercise bike manufacturer to survive and succeed. Hence, there will always be some risk involved for anyone invested in Peloton Interactive.
At the same time, the Lululemon partnership offers some much-needed hope. Peloton Interactive has had its ups and downs – mostly downs, I’ll admit, since 2020. Nevertheless, PTON stock is so far down that a fresh wave of positive news could send it much higher. Consequently, I feel it’s fine to consider a very small share position in Peloton. Just be ready for controversy to possibly strike again, and always have an exit plan if things go wrong.