The remote economy sparked demand for Peloton’s (NASDAQ:PTON) bikes as people looked for new ways to stay fit indoors. The company’s monthly subscriptions give users access to world-class trainers from the comfort of their homes. As a result, PTON stock was up more than 430% in 2020, ending the year at $150.
Now, as we near the end of the pandemic, investors are left wondering if PTON stock will continue to have its allure in a post-Covid era.
While the company isn’t what you would consider a pandemic recovery play, there are plenty of reasons to believe that Peloton will generate big returns in the coming years. Here’s why PTON is a buy for me in the new normal as well.
PTON Stock Is A Buy For Its Brand Image
Investors in the bear camp can provide several reasons to stay away from PTON stock, especially at a time when gyms across the nation open up. However, despite the potential headwinds in a post-pandemic world, Peloton stock remains a worthy bet for its strong brand image.
Spinning classes and stationary bikes have been around for many years but the cost and exclusivity of these workouts have made them largely exclusionary.
Peloton set out to change this narrative by bringing the workout to people’s homes. With a one-time investment in the bike and a monthly subscription plan, users now have access to world-class trainers from the comfort of their homes. The remote characteristic of the workout bodes well for the company during the pandemic.
At the start of the pandemic, Peloton experienced a sharp rise in the demand for its product. The company was plagued with supply chain issues for a while but has since reduced its backlog. As reported by The Wall Street Journal bike wait times have decreased between one and three weeks.
But more importantly, Peloton’s bikes became a status symbol for many. The company’s cult-like following saw the bike as more than just exercise equipment. Users aligned closely with Peloton’s core value of “empowering people to be a better version of themselves.”
Moreover, Peloton’s Connected Fitness Program is incredibly intuitive and a great alternative to the traditional gym membership. The subscription can be shared within the household and has a 92% retention rate. So, while there is good reason to believe that Peloton’s growth will dampen post-pandemic, I think the company’s brand power will keep the stock in the limelight.
Peloton Will Ride Higher In The Future
Adding to its powerful brand image, there are a couple of other reasons why I think PTON stock will go higher in the future. The company recently acquired the exercise equipment manufacturer, Precor in a $420 million deal. This acquisition will help Peloton cross one of its biggest hurdles: supply chain issues. In light of increased demand for its bikes, Peloton struggled to keep up production levels. The acquisition of Precor will help solve this problem as all equipment manufacturing will be done within the U.S. Prior to this, Peloton had outsourced the production of its bikes overseas.
A second tailwind for the company is post-Covid trends in the fitness industry. Gyms and fitness studios have remained empty for much of the last 12 months. In ordinary circumstances, the reopening of these facilities signals a shift back to in-person workouts. But like many pandemic trends, remote workouts could be here to stay. According to the Consumer Trends 2021 report, 81% of millennials and 66% of all responders said that they would prefer to exercise at home.
So, with a strong brand image and changing consumer trends, it’s safe to say that Peloton will thrive in the post-Covid era as well.
The Bottom Line
As gyms and fitness studios open up, we are likely to see a dip in the Peloton bike sales in the coming months. But looking at the bigger picture, the exercise bike manufacturer has a lot going for it. For one, the acquisition of Precor gives the company access to the commercial fitness market. This will enable Peloton to diversify its product offering to include other verticals as well.
Second, the changing consumer trends when it comes to fitness are a huge tailwind for the company. People can work out on their bikes from the comfort of their homes and alternatively, sync their workouts to the Peloton app when working out at corporate gyms.
We may be nearing the post-Covid era but there are still plenty of reasons to bag PTON stock while prices remain low.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.