Based in New York, fitness equipment maker Peloton (NASDAQ:PTON) seemed like a great company to invest in during the onset of the Covid-19 pandemic. Some folks bought PTON stock during lockdowns as the home-fitness trend gained traction.
And indeed, there was a brief period of time when people were willing to shell out big bucks for stationery exercise bikes. That trend faded, however, as lockdown restrictions were lifted and people went back to their favorite gyms to exercise.
That factor by itself might be enough to persuade you to avoid PTON stock. There are plenty of other problems, though, such as a report of widespread outages affecting the Peloton app.
As we’ll discover, app outages might be the least of Peloton’s issues. So, let’s delve into PTON stock’s technical damage, which is substantial.
PTON Stock at a Glance
Time and again, InvestorPlace contributors tried to warn prospective bottom-fishers not to jump into the trade with Peloton. They’ve been told to walk away, warned not to fall for the rallies and cautioned that Peloton’s comeback prospects were murky at best.
On top of all that, I gave Peloton an “F” in my Portfolio Grader. So, were we right to recommend a bearish stance?
The answer is definitely yes. Ever since PTON stock topped out at $170 in January 2021, the sellers took over and all attempted rallies have failed.
In hindsight, it’s evident the Peloton share price never should have ballooned from $20 to $170 in the first place. Gains of that magnitude are usually only sustainable when a company is rock-solid, which Peloton definitely isn’t.
Fast-forward to late February 2022, and PTON stock recently traded around $28. It would be a shame if the stock made a complete round trip back to $20, but don’t be surprised if this happens before the year is finished.
Bad Financials, Bad Reputation
It’s hard to find a starting point when discussing Peloton’s many problems. For one thing, the company’s financial woes are considerable.
During the fourth quarter of 2021, Peloton posted a net earnings loss of $313.2 million. Moreover, it reported a net earnings loss of $376 million for the company’s fiscal first quarter.
Raymond James analyst Aaron Kessler stated, “Based on our updated analysis, the search trends data indicates continued softening of demand for Peloton sales in the December quarter.” This could help us determine why Peloton has performed so poorly, financially speaking.
Yet, its fiscal issues were likely also impacted by the company’s reputational problems. In February 2021, a three-year-old boy was trapped under a Peloton Tread Plus. Regrettably, this child ended up having a significant brain injury.
Then, in March 2021, another young child was killed in an accident involving a Tread Plus treadmill. In response to this and more than 70 other reported incidents, Peloton initiated a recall of the company’s Peloton Tread Plus treadmill, model number TR01.
Layoffs and Alleged Cover-Up
In case all of that isn’t enough, we have more bad news to report. In a message from Executive Chair John Foley, he announced “the difficult decision to reduce the size of the Peloton team by approximately 2,800 positions globally.”
Obviously, 2,800 layoffs could have a profound negative impact on Peloton’s customer service and operational efficiency. Besides, it’s just a bad sign the company is shrinking at this rate.
Finally, there’s the alleged “Project Tinman.” Apparently, executives at Peloton hatched a plan to conceal corrosion in exercise machines and send them to customers “who had paid between $1,495 and $2,495 to purchase them.”
We cannot confirm or deny the truth of this allegation. Still, it’s potentially another huge crack in Peloton’s already-precarious foundation.
The Takeaway on PTON Stock
Before considering a long position in PTON stock, try making a list of Peloton’s competitive advantages. Then, make a list of the company’s problems. Don’t forget to include the stock’s technical damage when making that list.
This exercise will help you to form a sensible conclusion about Peloton’s future prospects. At the end of the day, you’ll probably want to stay on the sidelines as an investor.
Also, keep an eye out for future developments with Peloton. Chances are, the company’s problems will only continue to mount and PTON stock won’t recover.
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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