With Murky Comeback Prospects, Avoid Peloton Stock

Peloton Interactive (NASDAQ:PTON) may seem like a bargain at today’s prices. At least, this is based on how things look on the surface. After its sharp drop in price, you may think that investors have overreacted when it comes to PTON stock by going from extremely bullish to extremely bearish.

Peloton (PTON stock) sign on city storefront

Source: JHVEPhoto / Shutterstock.com

However, let’s take a closer look at the facts. The market wasn’t wrong when it pushed the stock down around 74% below its all-time high. As seen in its underwhelming quarterly results and updates to guidance, it’s no longer growing at a rapid pace. As the pandemic recovery continues, at-home fitness will likely continue to see a drop in demand even as the latest variant of Covid-19 (omicron) spreads around the world.

That’s not to say the company is taking action when it comes to getting back on track. The issue is that, for now, it’s unclear whether these measures will lead to its comeback or end up doing more harm than good for the company brand and financial performance.

In short, at around $44 per share today (down from a high of $171.09 per share), there’s not much reason to go contrarian by buying this stock. As analysts  pare down prior forecasts, further disappointment and even lower prices are likely ahead.

Latest Price Drop for PTON Stock

Mostly, it’s been a slow and steady slide lower for Peloton shares. But early last month, the former pandemic-era favorite experienced a full-on tanking in price, when shares fell around 33.5% on Nov. 5 alone, following its most recent earnings release/guidance update.

For its fiscal first-quarter (ending Sep. 30), the company reported revenue of $805.2 million, up only 6% year-over-year. Losses came in at $376 million, which comes to $1.25 per share. Both figures came in below analyst expectations. For Q1 fiscal year 2022 (FY22), the sell-side community estimated revenues of $808.7 million, and net losses of $1.10 per share.

However, what really caused the market to beat down PTON stock was not these underwhelming earnings numbers. Instead, it was management’s latest guidance updates. For Q2 FY22 (ending Dec. 31), the connected fitness device maker expects revenues of between $1.1 billion and $1.2 billion. That’s far below what analysts were projecting ($1.49 billion). Not only that, but based upon its results from the prior year’s quarter ($1.06 billion in revenue), this implies just 4%-13% sales growth.

Based upon more recent market data about falling demand, I would say it’s more likely sales for this quarter will come at the low end of these estimates. Those bullish on the stock may believe the omicron variant, plus the company’s turnaround efforts, will help reverse the trend. Unfortunately, I don’t believe it will play out that way.

Don’t Expect Omicron, or Other Factors, to Save The Day

On Nov. 26, as the word “omicron” started to enter the world’s lexicon, PTON stock saw a pop on a day that markets reeled on fears that the newest variant of Covid-19 would result in a new round of lockdowns, and an end to our return to the “old normal.”

However, when markets reopened the following Monday, shares dropped almost as quickly as they picked up. With reports calling this latest variant “mild,” the response to it may be more similar to the response to the Delta variant rather than a return to 2020’s lockdown mode. Again, the market is correct in writing this off as something that could get demand for the company’s stationary bikes and treadmills back into gear.

Same goes for the company’s efforts to get itself back into growth mode. I’m talking about its new product launches like its new strength training product, the Peloton Guide. Put simply, this may be too little too late on the company’s part when it comes to getting into the at-home strength training markets. Products like the Tonal at-home smart gym may have the first-mover advantage in this segment of the market.

I’m also talking about its price cutting efforts. This has so far failed to turn the tide when it comes to decelerating sales growth. It has also possibly cheapened its once exclusive, premium brand. Put simply, until there’s evidence to the contrary, I wouldn’t expect any of these factors to help re-accelerate growth, and in turn help this former “hot stock” make its way back to its prior glory.

The Verdict on PTON Stock

Getting an “F” in my Portfolio Grader, this is a clear-cut “stay away” situation for now. Sure, Peloton could surprise when it releases numbers for this quarter a few months from now. Yet, I wouldn’t just run out and buy this stock simply on the hopes that this happens.

As it stands now, there’s little to suggest that the trends slowing the company’s growth to a trickle are set to reverse. With this, it’s best to skip out on PTON stock and look elsewhere.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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