Peloton (NASDAQ:PTON) stock is down 25% for the year. However, prior to the company’s second-quarter earnings report, PTON stock was in the green. Of course, you can’t overlook the report that showed a steep decline in earnings and weak guidance (more on that later). But with the stock finding a base around its 52-week low, there are bullish and bearish arguments for Peloton. Do any of these arguments have merit? I’ll let you decide.
The first bullish argument comes from analysts and institutional investors. Peloton is a consensus hold among analysts. However, despite several analysts lowering their price targets, the consensus price target shows PTON stock nearly doubling from its current price. Another part of this bullish argument is in institutional ownership. Over the last 12 months, buyers outnumber sellers over 2 to 1. And although some of that growth is slowing, so is the amount of selling. Simply put, it’s more important to follow what the smart money is doing rather than saying.
The second reason that PTON stock may be a buy is that it appears to be garnering interest from several suitors as a takeover target. Amazon (NASDAQ:AMZN) and Nike (NYSE:NKE) are among the names being mentioned. There is no guarantee a transaction will take place. However, the cult-like following that Peloton enjoys may make it appealing to another company as a niche offering.
But getting back to that earnings report brings us to our reason why investors may want to stay away from PTON stock. Although the company reported higher year-over-year revenue in the first two quarters of the year, that streak looks likely to come to an end based on the company’s guidance. And the company is struggling to find a pricing model that works in a post-pandemic economy. Plus, it’s never a good sign when a company is raising prices and making less profit.
With Peloton stock, your perception will shape your reality. If you believe that the company has a fundamentally flawed business model, then you should stay away. However, if you have a tolerance for risk, then there may be a reason to take a small position today. At worst, you can keep PTON stock on your watchlist and wait for more guidance when the company reports earnings on May 5.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
