Peloton Interactive Stock Isn’t a Stay-at-Home Play, Irrespective of the Omicron Variant

I’d highly discourage you from investing in Peloton Interactive (NASDAQ:PTON) stock no matter what you hear about its possible turnaround.

Peloton (PTON stock) sign on city storefront
Source: JHVEPhoto /

With the rise of the new Omicron variant, many investors may be looking to edge towards heavier portfolio allocation in “stay-at-home stocks.”

Whether this would be a good move or not is still largely subjective as there’s inconclusive information available to central authorities to make succinct decisions on national lockdowns.

With that being said, if you do happen to be looking for a “stay-at-home stock,” Peloton isn’t the one you want. There are clear faultlines in the current stock price, and I believe the asset’s intrinsic value is much lower than most think.

A Closer Look at PTON Stock

First off, It has to be said that Pelaton does sell a range of fitness products and has a clever way of monetizing its business with a subscription-based revenue model on the very product it sells.

However, the fact of the matter is that it is heavily reliant on selling its flagship stationary exercise bikes. My argument isn’t that the bikes won’t sell if people aren’t staying at home anymore. No, it’s more theoretical than that.

Peloton’s revenue is negatively skewed, which means that a drawdown in quarter-over-quarter revenue decline can be more abrupt from here on in than the growth in quarter-over-quarter revenue.

The reasoning for this is purely economic.

The Peloton brand sold excessively during a time in which its main product was a bit of a social fad. The amount of disposable income per consumer was exponentially higher during stimulus peaks in 2020 and early 2021. However, as re-openings started and disposable income drew down, as did Pelaton’s sales.

The mentioned factors are visible in Peloton’s Nov. 4 first-quarter earnings report. Peloton missed on revenue expectations by $3.67 million and also faltered on earnings-per-share by 17 cents per share.

Peloton also downgraded its full-year revenue guidance to $4.4 billion – $4.8 billion, down from its $6.91 billion consensus number. As a consequence of the drawdown in sales Pelaton’s stock has cratered down to earth and lost half of its value since it released its earnings report.

Hedge Fund Selling

Observing hedge fund activity usually tells us a lot about tactical plays in the market, and the general tactical sphere is overlooking Peloton.

Household names in the Hedge Fund industry have either sold or reduced their stake in Peloton stock. According to the latest 13-F filings, Hedge funds sold approximately 1.7 million shares during last year’s third quarter. The most notable among the sellers were Chase Coleman, Phillipe Laffont and Richard Chilton.

Chase Coleman and Phillipe Laffont are two understudies to the legendary hedge fund manager, Julian Robertson. They’re considered to be two of the most talented new-age tactical managers, and the fact that they’ve reduced their positions in Pelaton is certainly something worth looking into.

I spoke of intrinsic value in the opening paragraph. I took a “price versus money-in” approach to value the stock. I believe that it’s trivial that the firm’s future earnings will cool down in the medium-term amid lower disposable income and the prospect of higher interest rates.

As things stand, the stock price has outpaced the company’s sales by 3.39x. If we consider this metric along with an anticipated 65.37% decline in revenue growth for the next year, it’s safe to say that investors have gotten ahead of themselves a tad.

There’s definitely no intrinsic value in-store, especially considering the firm’s also producing negative cash flows.

So What Now?

I’m by no means saying that Peloton is a lousy company, nor am I saying that PTON stock can’t be a future multi-bagger.

My argument is that this isn’t the ideal entry-point moment if you’re looking to invest in Peloton stock. Things we’ll first need to see for this to become a better-rounded stock are the following: a better revenue dispersion among its product lines, more robust economic support, more institutional enthusiasm and a better price to sales multiple.

On the date of publication, Steve Booyens did not hold any long or short positions in any of the securities mentioned. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, BenzingaGurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.

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