What names come to mind when you think of stay-at-home stocks? Upscale exercise bike maker Peloton Interactive (NASDAQ:PTON) might not be at the top of your list, but perhaps it ought to be. After all, PTON stock increased in value largely due to the home-exercise trend precipitated by the novel coronavirus.
Yet a strange thing has happened recently. PTON stock tumbled 7% on Nov. 13, and there wasn’t any bad news specific to Peloton. And to be frank, the shares have been dropping since mid-October.
Is this a dip worth buying or will the stock keep falling? Plus, what caused the Nov. 13 selloff? We’ll address these pressing issues and more, starting with an analysis of Peleton’s recent price action.
A Closer Look at PTON Stock
What we have here, I believe, is a case of “too much, too fast.” You see, the 52-week high of $139.75 was set on Oct. 15 after a swift and unsustainable rally by the shares.
Consider the fact that PTON stock rocketed from $17.70 to almost $140 in just a matter of months this year. Sure, the onset of the coronavirus meant that more people were probably buying home-exercise equipment.
But that doesn’t mean that the shares should have gone vertical like they did.
Lately, the stock hasn’t been such a high flyer. The shares were trading at $100 and change on Nov. 13. Value seekers should appreciate Peleton’s lower price point and consider taking advantage of it.
First, though, it’s important to understand the recent event that put pressure on the shares.
Vaccine Fear
The words “vaccine” and “fear” aren’t normally connected for investors because it seems like every stock should go up when a Covid-19 vaccine is discovered. Right?
Not necessarily. Stocks that are pigeonholed into the stay-at-home category might not benefit from the discovery of a Covid-19 vaccine. In fact, they might lose value in the short-term.
Peleton is a perfect example of this. Not long ago, the market cheered as drug makers Pfizer (NYSE:PFE) and Germany-based BioNTech SE (NASDAQ:BNTX) announced successful data from a Phase 3 study of their Covid-19 vaccine candidate, BNT162b2.
Yet while the trading community was generally in good spirits, some owners of Peleton’s shares evidently lost their resolve. Maybe they sold off their stock based on the fear that people wouldn’t buy home-exercise equipment anymore.
To be more accurate, I don’t think that investors are actually worried about a complete cessation of home-exercise equipment sales. Really, the concern is about a slowdown in a trend that got overheated.
Finding a Steady Pace
And to be fair, both the company and the stock got ahead of themselves this year.
For Peloton’s fiscal fourth quarter, the company reported net income of 27 cents per share, drastically exceeding analysts’ average estimate of 10 cents per share.
Moreover, Peloton’s quarterly sales increased by a jaw-dropping 172% on a year-over-year basis to $607.1 million.
Like a cyclist that starts off a race at full speed, Peloton couldn’t possibly keep up this growth pace. Consequently, a cooling-off period was necessary and healthy for PTON stock.
The encouraging vaccine development was an excuse for the company’s shareholders to take profits after an incredible run-up by the stock. Even with all of this, Peloton still models fiscal 2021 revenues of $3.50 billion to $3.65 billion.
In other words, Peloton clearly doesn’t anticipate a major slowdown in home-exercise equipment sales, vaccine or no vaccine. If its shareholders can just pace themselves, a sustainable turnaround could be in store.
The Bottom Line
The decline of PTON stock was actually healthy, even if it was precipitated by irrational vaccine fear.
Now you can own the shares at a more reasonable price in anticipation of a steady-paced marathon instead of a short-term sprint.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
