Stock Analysis & Ideas

Peloton Stock (NASDAQ:PTON): Exercise Your Right to Stay Away

Story Highlights

Peloton recently struck up a deal with a well-known sporting goods store chain. That’s helpful, no doubt, but it probably won’t be enough to buoy Peloton after multiple quarterly losses.

Peloton Interactive (NASDAQ: PTON) was briefly a COVID-19 pandemic darling, but those days are now in the rearview mirror. What’s left is a business that’s beset with multiple problems – too many for cautious investors to handle, so I am neutral on Peloton stock.

Peloton sells an array of home exercise equipment online. Mainly, the company sells exercise bikes and treadmills, as well as apps to help customers manage these machines.

Peloton stock rallied fast and far in 2020 – when people focused on their health and e-commerce was booming. Those trends have eased during the past couple of years, though, and Peloton now has to demonstrate its viability as a “going concern,” as they say. The company does have a notable deal with a sporting goods retailer, but Peloton’s problems are too numerous, and investors should choose fiscal fitness over speculative fervor.

It’s Just One Mishap after Another for Peloton

You’ve probably heard about Murphy’s Law: “anything that can go wrong will go wrong.” This rule certainly applies to Peloton, which has suffered from legal problems and reputational damage due to a series of mishaps.

According to a Bloomberg update, reports emerged last year that adults, pets, and children had been injured after being pulled underneath Peloton’s Tread+ treadmill. Tragically, at least one child died as a result. Consequently, the U.S. Consumer Product Safety Commission advised that Tread+ owners should stop using it immediately and should contact Peloton for a refund.

The numbers are alarming: in addition to the reported death, Peloton has received 335 incident reports concerning the Tread+ treadmill. These include 87 reports of injuries to the consumers. Even beyond slowing the sales of the $4,300 treadmills, these incidents made Peloton a laughingstock among some users of financial message boards.

This is no laughing matter, however. Frustratingly, Peloton still hasn’t finalized a fix for the Tread+ treadmill. As a result, the company has extended the refund window for current users of this product.

There are other problems to report, as well. A number of executives have left Peloton, including Chief People Officer Shari Eaton. I already alluded to Peloton’s slowdown in sales as people returned to gyms when the COVID-19 threat receded. In case all of that isn’t enough, Peloton is now being sued over allegations that an executive made fun of a trainer’s Irish accent.

Dick’s Sporting Goods Deal is Encouraging but Won’t Fix Peloton

Sometimes, a single positive catalyst can save a company from financial ruin. Perhaps some investors are pinning their hopes on a deal with sporting goods retail chain Dick’s Sporting Goods (NYSE: DKS) to keep Peloton stock afloat or even spark a turnaround. However, cautious traders shouldn’t let optimism diminish their skepticism.

Here’s the lowdown. Apparently, some of Peloton’s products – including the Tread, but definitely not the notorious Tread+ – will be available for sale at over 100 Dick’s U.S. retail locations and on the retailer’s e-commerce platform. Peloton Senior Vice President of Global Direct Sales, Jen Parker, assured that Dick’s is a “natural fit” for the Peloton brand.

Is it, though? Consider why many people stop off at Dick’s in the first place. They don’t typically think of Dick’s as a high-end fitness equipment store. Customers are more likely to pick up a much less expensive piece of sports or workout gear or clothing there. Sure, they might see a pricey Peloton bike or treadmill, but then they could easily buy a less expensive version online from a competing seller.

So, before you hastily buy Peloton stock because of the Dick’s deal, consider the bigger picture. During the three months ended June 30, 2022, Peloton’s net loss ballooned to $1.24 billion, versus a $313.2 million loss in the year-earlier quarter. Shockingly, Peloton has recorded six consecutive quarters of losses.

Then, we have to consider Peloton’s job cuts. Just this year, Peloton has implemented four rounds of workforce reductions, including a recent slashing of 500 jobs. Is this what one would expect from a company in turnaround mode?

Wait – I’m not even finished yet. Just to add one more problem to the list, Peloton co-founder John Foley faced “repeated margin calls on money he borrowed against his Peloton holdings” before he left the company’s board in September. That’s according to “people familiar with the situation,” cited by the Wall Street Journal, and it’s another sign of dysfunction for Peloton.

Is PTON Stock a Buy, According to Analysts?

Turning to Wall Street, PTON stock has a Moderate Buy consensus rating based on 12 Buys, seven Holds, and two Sell ratings. The average Peloton price target is $16.13, implying 119.75% upside potential.

Conclusion: Should You Consider Peloton Stock?

For all I know, Peloton stock could turn a corner tomorrow and start climbing higher. This would require a miracle, though, and sensible investors don’t need to get involved in problem-riddled Peloton now. Sure, the arrangement with Dick’s could help Peloton a little bit. However, between the company’s financial quagmire and its reputational issues, there are just too many reasons to refrain from investing in Peloton.

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