Editor’s Note: This article was updated on Jan. 10, 2022, to correct Peloton’s name.
In 2020, every macro trend could not go more right for Peloton (NASDAQ:PTON) and PTON stock. Last year was, at-best, mediocre period for the exercise-equipment maker in terms of the macro situation. And late last year, the situation turned quite negative for the company and its shares.
Now all signs are indicating that 2022 will be a mirror image of 2020 for Peloton and the stock. In other words, every possible macro trend looks to be going wrong for the company.
As a result, it’s definitely not a good time to buy or even hold PTON stock.
Two Mirror-Image Years
In 2020, the majority of Americans were convinced that they had to stay at home in order to attempt to avoid contracting the coronavirus. Of course, at that time, there were no vaccines and no highly effective therapies for the virus. Moreover, for much of the year, gyms were closed in most of the country.
In that environment, Peloton and PTON stock thrived. That’s because, with tens of millions of Americans unable to go to gyms, many of those who could afford to do so bought Peloton’s bikes and obtained subscriptions from the company.
Conversely, in 2022, the omicron version of the coronavirus is not nearly as deadly as the initial version, and many people are vaccinated against the virus. Moreover, the vast majority of state and local governments have given up on lockdowns, so many gyms are open across the country. As a result, most American consumers can go to gyms instead of buying and using Peloton’s products.
And from a macroeconomic perspective, the Federal Reserve’s printing press and the federal government’s stimulus powers were being fully utilized in 2020. Now the Fed is apparently ready to reverse course and much of Washington’s stimulus has dried up.
Consequently, in 2020, investors could not get enough of high-growth, high-valuation names, including PTON stock. But this year they cannot sell high-valuation, unprofitable, aspirational names quickly enough. (Unfortunately for the owners of its stock, Peloton is now in the latter category.)
The Effects of Recent Trends on PTON Stock
In-line with common sense, Peloton and its stock have performed very badly recently, as the 2022 trends that I described above have started to materialize.
For example, JMP Securities on Dec. 31 wrote that Peloton’s “website visits and page views declined Y/Y in December (month-to-date).” The firm cited Similarweb as the source of that information.
As a consequence of that data, the firm cut its estimates for Peloton’s fiscal 2022 below analysts’ average outlook and below Peloton’s guidance.
Similarly, on Dec. 28, research firm Raymond James stated that, “our analysis of search data continued to show a meaningful year-over-year slowdown” for Peloton. The firm believes that the company will fall short of its guidance and kept a “market perform” rating on the shares.
Peloton’s fiscal first-quarter results, released on Nov. 4, were also very disappointing. The company reported Q1 earnings per share of $1.25, which was 17 cents below analysts’ average estimate. And the company’s revenue climbed only 6.2% year-over-year to $805.2 million, which was $3.67 million short of the mean estimate.
What’s more, Peloton cut its FY22 topline guidance to between $4.4 billion and $4.48 billion from its previous view of $5.4 billion. Meanwhile, the company now expects its full-year EBITDA, excluding certain items, to be -$425 million to -$475 million.
And PTON stock had tumbled 61.5% over the three months that ended on Jan, 5.
Despite their huge pullback, the shares are still trading at a hefty-price sales ratio of nine times.
So with strong macro trends continuing to become more negative for Peloton and PTON stock by the day, the shares have much more room to fall. Consequently, I recommend that all investors sell the name.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Plug Power, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.