The fitness equipment manufacturer Peloton Interactive (NASDAQ:PTON), which saw a dramatic stock price increase during the COVID lockdown, is struggling, losing about 97% of its value following the pandemic. After the company’s Q2 FY2024 financial report, PTON stock price took a hit due to dismal guidance from the CEO on lowered revenue expectations, making the stock a Hold with analysts and marking a critical stage in the company’s turnaround efforts.
PTON Stock’s Meteoric Rise and Fall
Based out of New York, Peloton Interactive is a leading figure in the niche of exercise equipment manufacturers, producing bikes, treadmills, and other exercise equipment.
The explosive growth of Peloton is a tale of being in the right place, at the right time, with the right story (or product). At the onset of the COVID lockdown, Peloton was well-positioned to meet the need for home fitness solutions. Sales of equipment and subscriptions soared, and the stock climbed over 434%, reaching an intraday high of $171.09 on January 14, 2021.
However, the post-lockdown period has not been kind to the company. Stores, schools, and gyms reopened, while low-cost competitors entered the market. From its high point, the stock has shed roughly 97% of its value, reaching an intraday low of $3.96 on February 5, 2024.
Recent Results and Future Outlook
Peloton released the Q2 FY24 results on January 31, 2024. The company’s loss per share of $0.54 was in line with analysts’ expectations, while revenue of $743.6 million surpassed estimates. Nonetheless, PTON’s share price dropped 25% on disappointing guidance from management.
CEO Barry McCarthy lowered projected revenue expectations for Q3 FY24 from $700 million to $725 million, short of the $749 million consensus estimate. The CEO also cautioned that the company would miss its goal of generating positive free cash flow for the entire year, a key focus of management’s turnaround efforts.
Overall, the uncertainty around the company’s growth potential despite strategic initiatives, including a distribution partnership with e-commerce giant Amazon (NASDAQ:AMZN), continues to spook investors.
Mixed Reviews
A few analysts had a bullish response to Q2 FY24 results. Citi analyst Ronald Josey kept a Buy rating on the shares but lowered the firm’s price target on Peloton to $8 from $10. At the same time, Aneesha Sherman from Bernstein also assigned a Buy rating to Peloton Interactive, with a price target of $8.
Meanwhile, Curtis Nagle of Bank of America and Zachary Morrissey of Wolfe Research were more bearish, reiterating a Sell rating and setting a price target of $4.
Morgan Stanley analyst Lauren Schenk reduced the price target for Peloton stock to $3 from $4.50 and reaffirmed a Hold rating. The analyst is “incrementally more cautious” about the stock due to the poor free cash flow outlook for the second half of the year and the underperformance in the holiday quarter. Schenk does not expect positive free cash flow until Fiscal 2028.
Is Peloton a Buy, Sell, or Hold?
Based on five Buys, 14 Holds, and two Sells, Peloton has a Hold consensus rating on TipRanks. The average price target represents an upside of about 38% from current levels.
Key Takeaways
At its current levels, the valuation ratios of the stock suggest it is trading at a deep value relative to industry averages and its own historical ranges. However, are investors at the risk of reaching for a value trade only to catch a falling knife?
Despite the downgraded guidance for Q3 sales and adjusted EBITDA, management has made significant progress towards CEO McCarthy’s goal of positive free cash flow, expecting to reach that by Q4 FY24. Doing so would mark a critical point in the turnaround effort and may act as a catalyst for improving the outlook and demand for the stock. However, ongoing failure to reach profitability may spell the end of any potential rebound in the foreseeable future.
