Avoid Peloton Stock As It Recovers From Its ‘Dead Cat Bounce’

  • Last month, an analyst upgrade resulted in Peloton (PTON) stock spiking from $20 to $30 per share.
  • But now, the boost from this development is starting to wear off.
  • Focus may be shifting back to this busted pandemic play’s many problems. Steer clear, as it is likely to fall back to its all-time low.
Peloton (PTON stock) sign on city storefront

Source: JHVEPhoto / Shutterstock.com

As recently as Mar 29, hard-hit shares in Peloton (NASDAQ:PTON) appeared to be in the middle of a comeback. After hitting new lows during the middle of the month, PTON stock experienced a sharp surge, rising over 50% in a matter of weeks.

Yet in recent days, this has reversed. No longer making a comeback, it’s more like this fitness equipment maker’s shares are experiencing a pullback, following what amounted to a “dead cat bounce.”

A recent booster for shares has worn off. Investors are again taking a more holistic view of it. Put simply, that’s bad news for anyone holding it today.

This busted pandemic play is still dealing with a wide range of problems. On top of this, there are new risks on the horizon. With this, it won’t be a surprise if it gives back its recent gains in the weeks or months ahead.

Ticker Company Current Price
PTON Peloton $27.81

PTON Stock and Its Short-Lived Rebound

As I discussed in my last Peloton article, there was a catalyst for the stock’s jump from around $20 to around $30 per share during March. That would be news of a sell-side analyst who gave the stock an “outperform rating,” and a $40 per share price target. Bullish analyst reports don’t always have such a dramatic impact.

In the case of PTON stock, though, it seemingly was enough to excite investors, fueling its rapid move higher. Over the past week, it has fallen back to around $26 per share. Sure, there are many factors playing a role in its bounce back reversing course. Major indices have slipped lower in recent days. Traders who got into it at its lows may be doing some profit taking.

Alongside these possible reasons, a re-focus on its bevy of issues may explain its dropping back below $30 per share. The aforementioned sell-side analyst giving shares a bullish forecast may believe the company can ride out its current troubles. In turn, getting back into high-growth mode.

But not only could the situation with Peloton get worse in the meantime. Even if at-home fitness makes a comeback, that doesn’t mean that the company will return to its former glory.

Many Issues Will Affect Peloton’s Performance in the Near and Long-Term

I’m sure you’re well aware of the many issues that have, and continue to, put pressure on PTON stock. A sharp drop in post-pandemic demand for at-home fitness, have brought growth to a screeching halt. Supply chain headwinds and rising competition have made this worse.

In fact, instead of seeing its sales rise once again this fiscal year (ending June 2022), the sell-side expects to see its revenue slide 7.2%. Furthermore, as these issues, which cause it to deliver atrocious quarterly results in November and February, persist? Chances are when it reports again in May, it will elicit a negative response.

If it continues to deliver results that fail to meet already lowered expectations, Peloton shares will likely make a return to around $20 per share. So, if it falls back to its lows, is it worth a second look? I wouldn’t jump to that conclusion.

Again, while bullish analysts may have a glimmer of hope the “future of fitness” (aka connected fitness) trend will help re-accelerate growth down the road, that’s not a given. Safety missteps tarnished its reputation. It’s also no longer the only game in town when it comes to premium at-home fitness.

The Verdict on PTON Stock

Earning an “F” rating in my Portfolio Grader, issues in both the short and long term will further impact Peloton. Re-accelerating its rate of growth will prove to be a challenge. Unless it rationalizes its cost structure, and throws in the towel when it comes to scaling up its presence, it’ll remain far away from reaching the point of profitability.

In turn, as it stands now, there’s more to it pointing lower rather than higher, over the next few years. I’ll admit it’s premature to fully write-off the company’s turnaround plan, being implemented right now by new CEO Barry McCarthy.

But I wouldn’t buy it solely on the possibility the company’s turnaround pans out. Instead, it’s better to wait for a sign that a turnaround is starting to take shape. Until then, hold off on PTON stock.

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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Article printed from InvestorPlace Media, https://investorplace.com/2022/04/avoid-peloton-pton-stock-as-it-recovers-from-its-dead-cat-bounce/.

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