Peloton Interactive (NASDAQ: PTON) was among those companies that gained significantly from the pandemic era. The demand for its at-home fitness products skyrocketed while its subscriber base soared amid COVID-led restrictions.
However, with widespread vaccinations and easing restrictions, demand began to fade. Its revenues started to slide while cash dried up. This led to a plunge in its stock price. For context, PTON stock has lost over 92% of its value in one year.
Management blamed the reduction in demand and margin headwinds from product price cuts for lower sales and margins.
Nevertheless, management is making efforts to reinvigorate growth, stabilize cash flows, and strengthen its balance sheet.
While management’s business turnaround measures are positive, Stifel Nicolaus analyst Scott Devitt stated that “there is considerable uncertainty related to consumer demand, product mix and churn rates.”
Though Devitt acknowledges that Peloton could recover and deliver profitable growth, he sees “limited upside to share performance in the near term and expect it will take several additional quarters for the company to work through current demand/profitability headwinds.”
Devitt has a Hold recommendation on PTON stock and expects hardware margins to remain pressured due to the price reductions.
Bottom Line
Peloton’s price reduction, focus on rightsizing inventory, driving subscriptions, and lowering costs could stabilize its business. However, soft near-term demand and an inflationary cost environment could remain a drag.
Analysts are cautiously optimistic about PTON stock. It has received 14 Buy, 10 Hold, and two Sell recommendations for a Strong Buy rating consensus. Further, the average Peloton price target of $21.48 implies 140.8% upside potential.
PTON stock has negative indicators from hedge funds and TipRanks’ investors. Hedge fund managers sold 7.2 million PTON shares in the last three months. Moreover, 1.4% of investors holding portfolios on TipRanks have lowered their holdings in PTON stock in one month.
PTON stock has an Underperform Smart Score of 2 out of 10.
