tiprankstipranks
Peloton Stock Treading Water, Clashes with Lululemon
Stock Analysis & Ideas

Peloton Stock Treading Water, Clashes with Lululemon

Peloton (PTON) stock continues treading water, and its latest Tread product is unlikely to move the needle higher going into the holiday season.

Peloton’s Tread treadmill ran into trouble out of the gate. Although the firm is ready to move on from recalls, it’s unlikely that the magnitude of pandemic tailwinds will ever return again.

The stock has been punished accordingly, down around 75% from its all-time high. It’s been a disastrous fall, as more consumers opted to return to gyms rather than buying big-ticket home fitness items.

Although the Omicron variant could bring a bit of wind to Peloton’s back for coming quarters, Peloton stock remains incredibly difficult to evaluate. Price cuts could bolster sales and onboard potentially sticky subscribers, but it’ll eat into operating margins, which is the last thing the firm needs.

Undoubtedly, many investors view Peloton as a maker of commoditized home fitness equipment, rather than a technology company that offers its users a differentiated experience. With a brutal decline now in the rear-view mirror, the contrarian case seems to be much improved.

The stock has already endured some downgrades, but many more may follow, as shares plunge further away from a price target that now seems out of reach.

For now, I am neutral on the stock, given the lack of catalysts and a valuation that’s still too rich for my liking. (See Analysts’ Top Stocks on TipRanks)

Wall Street’s Take

According to TipRanks’ analyst rating consensus, PTON stock comes in as a Moderate Buy. Out of 26 analyst ratings, there are 12 Buy recommendations, 12 Hold recommendations, and two Sell recommendations.

The average Peloton price target is $78.42. Analyst price targets range from a low of $45 per share to a high of $112 per share.

Peloton Clashes with Lululemon

Peloton’s move into athletic apparel is quite encouraging. Undoubtedly, many articles of Peloton clothing seem to resemble offerings created by the likes of popular athleisure pioneer Lululemon (LULU).

That’s a major reason why Lululemon recently filed a lawsuit against Peloton. Peloton was quick to fire back with one of its own, and the two firms seem to be engaged in a bitter back and forth.

Undoubtedly, Peloton’s move into activewear has ruffled feathers. Still, such an apparel push ought to be seen as a potential catalyst that may help put a bottom in the stock at some point over the coming weeks and months.

Peloton’s activewear offerings, sports bras and leggings, in particular, look strikingly similar to that of Lululemon’s. Still, it’s tough to tell if Lululemon’s patents have, in fact, been infringed upon.

In any case, Peloton has shown a willingness to put up a fight, as it looks to leverage its robust network of subscribers to grow into new verticals like clothing.

Perhaps Peloton is getting a foot in the door with its recently marked-down fitness products to garner a sticky subscriber base that’s easy to sell other products to.

While the Peloton brand is the new kid on the block versus the likes of a Bowflex or Lululemon, investors shouldn’t discount Peloton’s brand affinity, which has garnered significant traction in recent years.

Peloton will always be associated with its stationary bicycle, fitness app, or treadmill. Still, given management’s willingness to spread its wings into similar markets, there’s a chance that investors may be discounting the firm’s growth, even though the biggest tailwind in its history is in the rear-view mirror.

Bottom Line on Peloton Stock

The 2020 type of environment will probably never happen again for Peloton, but that’s OK.

The stock has already nearly been cut in half twice. Arguably, Peloton stock has already overswung to the downside and analysts holding steady on their recommendations may be right in doing so, as the company looks for new growth levers to pull.

For now, Peloton stock is a falling knife and will not be for the faint of heart, as there’s no telling how much room to the downside remains, with the market turning its back against high-multiple growth stocks.

Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles