The sell-off in at-home fitness player Peloton stock stock continues. The stock has declined another 30% since our last update in early December and remains down by about 65% since early November after the company published weaker than expected Q1 FY’22 results and cut its full-year guidance, amid signs of cooling demand for its bikes and treadmills. Although daily Covid-19 cases in the U.S. have actually surged to all-time highs in recent weeks, a trend that should delay return to office plans and help at-home fitness stocks such as Peloton, investors appear to be sitting on the sidelines, given the broader shift out of pandemic-era winners and recent news that Peloton stock would be excluded from the Nasdaq-100.

So is the stock a buy at current levels? We think so. Peloton stock now trades at about $31 per share, or about 2x projected FY’23 revenues (fiscal years end June) roughly at levels seen in January 2020, before Covid-19 began spreading globally. However, the company has actually made considerable progress since then. For example, Peloton has grown its lucrative base of connected fitness subscribers almost 3x from pre-pandemic levels to around 2.5 million, while also expanding its addressable market via new deals and production capacity increases. The Peloton brand has also become a household name of sorts thanks to the pandemic. Despite the decline in guidance and slowing growth rates versus early pandemic quarters, Peloton still has a fair bit of runway. Peloton’s sales are projected to rise by around 12% this year, per consensus estimates, with growth likely to come in at about 25% in FY’23. Peloton’s international expansion is also just getting started, with the company also likely to see more opportunity in the commercial fitness space. We estimate Peloton’s Valuation to be around $50 per share which is about 60% ahead of the current market price.

Check out our analysis on Peloton Revenues: How Does Peloton Make Money for a closer look at Peloton’s business model, key revenue streams, and how they have been trending.

Peloton Stock Continues To Lag The Market. Is It Time To Buy?

Peloton (NASDAQ: PTON) stock remains down by about 18% over the last month, considerably underperforming the S&P 500 which remained roughly flat over the same period. Peloton stock has come under considerable pressure since the company published weaker than expected Q1 FY’22 results in early November and cut its full-year revenue guidance providing the clearest signs yet that the at-home fitness trend we saw through Covid-19 was cooling off. Separately, tech stocks and growth names, in general, have seen some weakness in recent weeks, as the U.S. Federal Reserve considers tapering its bond-buying program sooner to combat rising inflation.

So is Peloton stock still worth a look for longer-term investors? Although we recently reduced our price estimate for Peloton to $58, it still marks a premium of about 39% over the current market price. We think there are a couple of reasons why the stock might be worth a look at current levels. Firstly, although interest in home workouts is slowing with the post-Covid reopening and rising vaccination rates, the economics of owning Peloton equipment, which now starts at price points as low as $1,500, is still quite favorable compared to gyms and spin classes. Moreover, there have been rising concerns about a new variant of the coronavirus, named Omicron, which is believed to be much more infectious. This could potentially delay the re-opening plans for workplaces, helping at-home players such as Peloton. Moreover, Peloton’s international expansion is also just getting started, and this could also help growth. See our analysis Peloton Valuation: Expensive Or Cheap for more details on Peloton’s valuation.

The Covid Reopening Hits Peloton Stock Hard. Is The Bad News Priced In?

Peloton (NASDAQ: PTON) posted a weaker than expected set of Q1 FY’22 results last week and slashed its full-year revenue guidance as the re-opening of the economy and physical fitness centers began to take a toll on the connected fitness equipment company, which was seen as a classic pandemic play. While Peloton’s revenues grew by around 6% year-over-year to $805 million, the company slashed its guidance for FY’22 to a range of $4.4 billion to $4.8 billion, down from $5.4 billion. This translates into a year-over-year growth rate of just about 10%, at the lower end of guidance.

It’s not just demand that’s cooling off. Peloton is also facing the heat in terms of margins and profitability. Commodity and freight costs are rising and the company is also seeing higher sales and marketing expenditures. Moreover, Peloton’s product mix is also becoming less favorable, as customers are increasingly opting for its lower-end Bikes. Peloton’s net loss for the quarter stood at about $376 million, compared to a net profit of $69.3 million a year earlier. The company has guided for gross margins of just about 32% for this year, down from levels of around 36% in FY’21 and around 45% in FY’20.

We’ve cut our price estimate for Peloton stock from around $100 per share to $68 per share to account for the company’s weaker than anticipated growth and margin headwinds. See our analysis Peloton Valuation: Expensive Or Cheap. That being said, our price estimate is still about 20% ahead of the current market price of around $56 per share. There are a couple of reasons why the stock might be worth a look at current levels. Firstly, although interest in home workouts is slowing with the post-Covid reopening and rising vaccination rates, the economics of owning Peloton equipment, which now starts at price points as low as $1,500, is still quite favorable compared to gyms and spin classes. Peloton’s international expansion is also just getting started, and this could also help growth. Peloton could play a larger role in the commercial and corporate fitness space, following its acquisition of Precor and deals with healthcare providers. The stock also remains down by almost 60% year-to-date, trading at just about 3.7x projected revenues post the recent sell 0ff, presenting a decent entry point for investors.

Peloton Stock Fell 22% Last Month, What Is Next?

Peloton stock (NASDAQ: PTON), a maker of connected fitness equipment, saw its stock decline by almost 22% over the last 21 trading days. In comparison, the broader S&P 500 remains down by about 3% over the same period. There have been multiple factors weighing on investor sentiment for Peloton in recent weeks. For instance, there are concerns about Peloton’s near-term margins, given that the company cut prices on its entry-level bike by $400 to $1,495 in late August, the second price cut in a year. The company also indicated that it would be raising marketing spending in FY’22, particularly to build visibility for its treadmill products. Moreover, investors are also likely concerned about the near-term demand outlook for Peloton, as the at-home fitness trend could cool off with U.S. Covid-19 cases on the decline and vaccination rates on the rise.

Now, is Peloton stock poised to grow? Based on our machine learning analysis of trends in the stock price over the last year, there is a 96% chance of a rise in PTON stock over the next month (twenty-one trading days).

Five Days: PTON 5%, vs. S&P 500 0.1%; Outperformed market

(35% Event Probability)

  • Peloton stock rose 5% over a five-day trading period ending 10/12/2021, compared to the broader market (S&P500) which remained flat.
  • A change of 5% or more over five trading days has a 35% event probability, which has occurred 178 times out of 509 times in the last two years.

Ten Days: PTON -1.3%, vs. S&P 500 0.02%; Underperformed market

(39% Event Probability)

  • Peloton stock declined -1.3 % over a ten-day trading period ending 10/12/2021, compared to the broader market (S&P500) which remained roughly flat.
  • A change of -1.3% or more over ten trading days has a 39% event probability, which has occurred 195 times out of 504 times in the last two years.

Twenty-One Days: PTON -22%, vs. S&P 500 -2.9%; Outperformed market

(5% Event Probability)

  • Peloton stock declined -22 % over a twenty-one day trading period ending 10/12/2021, compared to the broader market (S&P500) which declined by -2.9%
  • A change of -22% or more over twenty-one trading days has a 5% event probability, which has occurred 24 times out of 493 times in the last two years

We value Peloton stock at $100 per share, a premium of about 17% over the current market price. See our analysis Peloton Valuation: Is PTON Stock Expensive Or Cheap? for more details. Check out our analysis on Peloton Revenues: How Does Peloton Make Money for a closer look at Peloton’s business model, key revenue streams, and how they have been trending.

Peloton Stock Surges As Treadmills Go Back On Sale. Will Gains Continue?

Peloton stock (NASDAQ: PTON) rallied by almost 7% in Tuesday’s trading after the company said that it would resume sales of its less expensive treadmill, called Tread, in the U.S., U.K., and Canada from August 30. Sales of the Tread, which began in the U.K. late last year, were halted this May due to a problem with its touch screen which detached and fell on users. Overall, we see the resumption of sales of the Tread as a significant positive for Peloton stock. Although treadmills have accounted for only a small mix of the company’s sales thus far, they are likely to be key to long-term growth. The company previously said that initial reception for the Tread in the U.K. was much stronger than it had expected, noting that the treadmill market size was potentially much larger than bikes. Sales of Peloton’s higher-end Tread+ treadmill – which was linked to the death of a child – remain suspended, but we could have further updates on the product when the company publishes Q4 results on Thursday.

Apart from the recent positive development on the treadmill front, Peloton and other “at-home” fitness players stand to benefit from the recent surge in Covid-19 cases. The seven-day average case rate has risen from 22,000 in early July to a rate of over 150,000 cases presently. This could delay the re-opening of workplaces and keep people at home for a few more quarters, bolstering demand for fitness products. Peloton might also be in a better position to cater to demand now, considering that it has taken many steps to address its supply chain bottlenecks.

We value Peloton stock at about $130 per share, about 10% ahead of the current market price. See our analysis on Peloton Valuation: Is PTON Stock Expensive Or Cheap? for more details.



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