Those who have been following fitness equipment maker Peloton (NASDAQ: PTON) for any length of time know the trouble the company’s been having lately. Today, PTON is trying to make a turnaround, as the stock is rallying; here’s why. Peloton inked a deal with Hilton Hotels (NYSE: HLT) to bring Peloton equipment to every single hotel in Hilton’s portfolio.
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All 5,400 Hilton-owned hotels—including hotels under the Doubletree and Hampton Inn brands, among others—will receive at least one bike as a result. Hilton Honors members will also receive a 90-day free trial of the Peloton app.
I’ve been bearish on Peloton since July. After hearing this news, though, it’s enough to make me wonder if there may be some new life in Peloton. If a couple more pieces of news like this emerge, if it can stop being a fluke and start being a tradition, then it might be time to re-examine Peloton. For right now, though, I’m still bearish.
The last 12 months for Peloton shares featured a plunge in November that set the tone for the entire year to follow. After dropping from just under $90 per share on November 2 to just under $49 on November 9, the company then started sliding downhill slowly. Two small rallies followed in February and March, but those didn’t last long as the company ultimately reached today’s figure of around $7.40 per share.
What is the Target Price for PTON Stock?
Turning to Wall Street, Peloton has a Moderate Buy consensus rating. That’s based on 12 Buys, eight Holds, and two Sells assigned in the past three months. The average Peloton price target of $15.94 implies 114.8% upside potential.
Analyst price targets range from a low of $8 per share to a high of $25 per share.
Investor Sentiment is Cautiously Looking Up
While investor sentiment metrics at Peloton aren’t the greatest, there is some cause for optimism therein. Currently, Peloton has a Smart Score of 4 out of 10 on TipRanks. That’s the lowest level of “neutral” and suggests that the company has a somewhat better than even chance of lagging the broader market, going forward.
That’s not much cause for optimism, but it gets better when you consider insider trading at Peloton. The last “Informative Buy” from Peloton insiders was made almost a year ago when TCV IX Cycle, L.P. made two Informative Buys that added up to just short of $100 million.
The aggregate, however, tells a different story – a story of mostly buying. In the last three months, no Peloton insider has sold stock. There were two Buy transactions staged in July, and that’s all the activity from Peloton insiders.
Looking at the last 12 months introduces new selling, but also quite a bit more buying. Peloton insiders staged nine Sell transactions but staged 20 Buy transactions. That shows there’s quite a bit of buying interest among Peloton insiders, and that’s only picked up over the last 12 months. There hasn’t been an insider sale of Peloton stock since January 2022.
Peloton’s Aristotelian Comeback Attempt
Aristotle, in The Nicomachean Ethics, had a great quote that relates perfectly to Peloton right now. “One swallow does not make a summer…one day or brief time of happiness does not make a person entirely happy.” There’s more to it, but that’s the summary version.
That’s about what’s happening to Peloton here. While it’s certainly good news that they’re about to sell several thousand Peloton bikes to Hilton hotels and get who knows how many new users in and streaming on the Peloton app, this is just one very big deal.
This is…but then, just a few days ago, there was another major Peloton-related deal that might help shore things up. Peloton set up a deal with Dick’s Sporting Goods (NYSE: DKS) that would see Peloton hardware available for sale at the store’s locations. This was a first-of-its-kind arrangement for Peloton, which previously had only been available through the company.
So this is, essentially, the second major piece of good news that’s hit Peloton in the last week. However, some have already pointed out that Peloton and Dick’s Sporting Goods aren’t exactly a great fit. Peloton is a high-end merchandise producer. Dick’s doesn’t exactly target a high-end clientele, which suggests that Peloton might not get everything out of this arrangement that it might like.
Yet, even those who question the move are quite aware that this is a good way for Peloton to drop some excess inventory. Peloton ramped up production in a big way back in 2020, as demand exploded during the pandemic.
Now, demand is softening as gyms have reopened. That leaves Peloton with a big pile of hardware and declining demand.
Worse yet for Peloton, there’s the matter of the macroeconomic situation. With inflation still running rampant at the grocery store and the gas pump, the demand for ultra-fancy app-driven exercise equipment is likely to plunge. Back in August, reports noted that Peloton lost money for six quarters consecutively.
Back then, CEO Barry McCarthy warned investors that the market for most of Peloton’s product line would be a challenging market in the immediate future. That certainly seems to be the case.
Conclusion: But What Will Peloton Do for an Encore?
Give Peloton credit: it understands its biggest problem—excess inventory in an environment of low demand—and it’s working to fix that problem. Peloton has completed several sales already. It’s working hard to vent inventory and get back on track. Once it sells off its surplus, though, what then? We’re still going to be left with a company with minimal demand for its exercise hardware and questionable interest in its subscription services. That doesn’t bode well in the long term at all.
Granted, insider trading is certainly looking bright. Peloton’s top brass seem to expect some gains coming up, and Peloton’s share price is currently below even the lowest price target. That opens up some real possibilities as a buy-in point.
If Peloton can find a way to keep interest in its app high, though, that might be a different story. However, for right now, we’re increasingly seeing an environment where everyone who wants a Peloton has one.
That’s not good news for future sales, and that’s why I’m bearish on Peloton. Peloton has triumphed extensively in the last few weeks. There’s a real potential win here, but it’s going to take something big to turn Peloton around for good.
