Even if you like dangerous trades, Peloton Interactive (NASDAQ:PTON) has poor financials, and a huge recall of Peloton’s bikes makes the company practically uninvestable, in my opinion. I am bearish on PTON stock and fear that today’s shareholders will suffer bigger and bigger losses in 2023.
Peloton Interactive provides a range of at-home exercise equipment. However, the company is mostly known for its exercise bicycles. Peloton was red-hot on Wall Street in 2020 because the COVID-19 pandemic prompted many people to exercise at home. Yet, that catalyst has come and gone, and it’s up to Peloton Interactive to prove that it’s still a viable business.
That’s easier said than done, and Peloton’s financial figures don’t point to a thriving company. In addition, Peloton Interactive’s reputational damage may linger for a long time because a recent development has raised safety-related questions about the company’s exercise bikes.
Peloton Interactive Falls Short of Analysts’ Forecasts
If you can believe it, PTON stock once sold for ~$171, but now it’s under $7. Today, PTON stock finished 9% lower — though we’ll get to the reason for that in a moment. Over the long term, Peloton Interactive stock has been a poor performer, and that’s partially due to the company’s inability to produce financials that meet analysts’ and investors’ expectations.
Unfortunately, Peloton Interactive has a less-than-stellar earnings track record that includes consistent quarterly EPS estimate misses during the past two years. Nevertheless, BMO Capital analyst Simeon Siegel recently upgraded PTON stock from Underperform to Market Perform. Siegel even went so far as to declare, “After all this time, the risk/reward has shifted, even seeing a likely upward skew at current levels.”
I have a funny feeling that Siegel will end up modifying his optimistic stance. Peloton Interactive’s results for the company’s third fiscal quarter (ended March 31, 2023) weren’t anything to celebrate. If there’s any positive news to be found, it’s that Peloton Interactive’s quarterly revenue of $748.9 million surpassed the consensus estimate of $710.5 million. Yet, that result also represents a sequential decline of 5.53% and a year-over-year drop-off of 22.34%.
Turning to the bottom line, analysts anticipated that Peloton Interactive would lose 48 cents per share during the third fiscal quarter; the actual result was a significantly deeper loss of 79 cents per share. On top of that, Peloton’s membership count fell 5% year-over-year.
Peloton Interactive’s Reputation Takes Another Hit
Peloton Interactive has already had reputational problems due to safety concerns about some of the company’s at-home exercise equipment. Now, Peloton is in damage control mode as the Consumer Product Safety Commission (CPSC) just disclosed a recall of nearly 2.2 million Peloton Interactive PL01 model exercise bikes.
Granted, this is a voluntary recall. Still, it’s not a good look for Peloton Interactive as the company acknowledges “35 reports of seat posts breaking out of 2,160,000 units sold in the United States, as of April 30.” I don’t know about you, but I’m cringing at the thought of trying to sit on one of those bikes.
Thus, it’s not difficult to understand why investors dumped PTON stock. Along with the reputational fallout, Peloton Interactive is incurring financial damage from the product defect — specifically, an estimated $8.4 million expense associated with a “voluntary corrective action plan.” This is a serious problem, to say the least, for a company that’s currently unprofitable and might stay that way for a while.
Is PTON Stock a Buy, According to Analysts?
Turning to Wall Street, PTON stock comes in as a Moderate Buy based on seven Buys, 11 Holds, and one Sell rating. The average Peloton Interactive stock price target is $11.75, implying 71.3% 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 Citigroup (NYSE:C), with an average return of 66.3% per rating. See below.
Conclusion: Should You Consider PTON Stock?
All in all, Peloton Interactive’s investors have a lot to worry about. Along with the scary product recall news, Peloton’s shareholders need to consider whether the company is on steady financial ground.
The answer is probably negative, and if there are any doubts about this, feel free to refer back to Peloton Interactive’s earnings track record. In the final analysis, there are plenty of high-conviction stocks to choose from today, so I’m not tempted to rush into a trade now with PTON stock.