With over 5.4 million members, Peloton (PTON) is one of the most popular names in the fitness sector right now. The shares of the fitness company witnessed astronomical growth during the pandemic, skyrocketing more than 400% in 2020.
However, the stock began to suffer consistent slips after January 2021. The reopening of economies has directly affected the company’s financial performance. The company generates revenue by selling fitness equipment like bikes and treadmills, besides providing digital and All-Access membership.
Notably, bike sales began to drop after May 2021, while there have been incidents of treadmill recalls. Indeed, Peloton’s growth is apparently decelerating as the company enters the new financial year. In addition, the company has decided to cut down on prices. Additionally, it appears that the lowered growth and price cuts have gotten investors jittery. I am neutral on this stock. (See Peloton stock charts on TipRanks)
PTON Q4 earnings failed to reach Wall Street estimates. Stocks plummeted as the company registered a loss of $1.05 per share on revenue of $937 million. Moreover, the stretched valuation has been a major concern.
Let’s find what’s happening with this stock right now.
Treadmill Recall a Major Debacle
The U.S. Consumer Product Safety Commission was critical of the treadmills manufactured by Peloton. Earlier this year, it had reported incidents such as children being pulled under the treadmill. Moreover, pets and other objects were also pulled under the equipment. There have been reports of as many as 38 injuries and at least 1 death.
This had compelled Peloton to recall all of its treadmills. The treadmill recall had definitely been a contributing factor to decreasing finances.
New Launches in the Pipeline
The fitness company has announced plans to roll out improved treadmills just days after its recall. It has decided to introduce its treadmills in Germany later this year.
Peloton is also working on developing an in-app video game named Lanebreak. The game, which is played on its Bike and Bike+ products, allows users to go through various tempo and resistance challenges. Subscribers can adjust the level of difficulty as per their convenience.
In addition, this company has announced its decision to build its first U.S. factory. It will be investing around $400 million to develop what it calls Peloton Output Park. Peloton expects the factory to become operational in 2023.
Working on Expansion
Eyeing to expand its business, this home fitness brand is looking to work on its M&A front. It has been buying companies that deal with AI, wearable, hardware, and such other segments.
This company has said it has spent $78.1 million to acquire 3 businesses in the last quarter of 2020. Deals with companies like Otari, Atlas Wearables, and Aquido will help it to focus on the production of smartwatches.
Moreover, Peloton has unveiled plans to expand its operations in Asian and Australian markets.
Valuation is Not Justified
Peloton shares have plummeted around 40% from their 52-week high. However, this stock’s valuation still seems to be quite expensive: it has been trading at 6 times the sales guidance.
With the focus shifting towards growth, Peloton might suffer a significant loss during 2022. Experts believe that if the company sales guidance proves to be overly inflated, the stock price is set to fall further.
Wall Street’s Take
As per TipRanks analysts rating consensus, Peloton stock is a Moderate Buy. Out of 22 ratings, there are 17 Buy, 4 Hold, and 1 Sell recommendations.
The average PTON price target is $131.55, implying an upside of 33.5%. The stock price target lies between a low of $74 per share to a high of $185 for each share.
The company enjoys a robust demand for its products while it continues focusing on expansion and M&As. However, time will tell how effective and beneficial the company’s aggressive pricing strategy would be. In a nutshell, PTON stock has the potential to deliver better results in the future.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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