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PTON Stock Drops as Peloton Recalls 2 Million Bikes


  • Shares of exercise equipment company Peloton (PTON) are falling sharply on Thursday.
  • The embattled company issued a recall of its exercise bikes due to injury risk.
  • PTON stock is worryingly testing the patience of shareholders.
Peloton (PTON stock) sign on city storefront
Source: JHVEPhoto / Shutterstock.com

Exercise equipment manufacturer Peloton (NASDAQ:PTON) continues to worry onlookers, this time because of a product recall of its exercise bikes. According to Bloomberg, the recall will impact approximately 2.2 million bikes due to a safety hazard associated with the device’s seat. As a result, PTON stock is falling more than 8% as of this writing.

Per a notice from the U.S. Consumer Product Safety Commission, customers should “immediately stop using the bike and contact Peloton for a free repair.” About the only positive for PTON stock may be the convenience angle. Users won’t have to return the equipment. Instead, the manufacturer “will provide a new seat post, which users can install at home.”

Still, the Peloton brand may suffer from a loss of confidence and credibility. Per Bloomberg:

“Peloton identified the flaw on its entry-level bike earlier this month. The defect involves the seat post — the part that attaches the saddle to the frame — on its original bike model, which costs $995. In certain circumstances, the post can break at the weld joint. The recall notice cited 13 injuries. Peloton said initially there were 12, including one wrist fracture, and it wasn’t immediately stopping sales.”

PTON Stock May Suffer from Credibility Woes

Fundamentally, a central concern impacting PTON stock is the underlying credibility crisis. MarketWatch notes that the seat port may be liable to break and detach. Some of the injuries include lacerations. “The seat post can break unexpectedly during use, creating a potential fall and injury risk,” Peloton stated in a press release about the recall.

Of course, another bright spot in this mess is that users can identify if they’re at risk rather easily. “Users can identify whether they have the affected bike by looking for a PL-01 model number on the label inside the front fork, near the bike’s flywheel,” according to MarketWatch.

Nevertheless, Bloomberg points out that this recall “marks the fourth time Peloton has disclosed a product defect in recent years, following recalls of bike pedals and both its treadmills.” In fact, the company had to cease sales of its Tread+ treadmill altogether after a young child died in an accident related to the device. The Tread+ remains off the market while Peloton works on a fix.

Geetha Ranganathan, analyst at Bloomberg Intelligence, stated in a research note that “Peloton’s recall of 2.2 million bikes due to potential injury hazards comes at a bad time given demand trends haven’t fully normalized.” For the year so far, PTON stock is down about 15%.

Why It Matters

Interestingly, at this juncture, Wall Street analysts still peg PTON stock as a consensus “moderate buy” according to TipRanks. This view breaks down as seven buys, 11 holds and one sell rating. Meanwhile, the consensus price target for Peloton shares stands at $11.75, implying 70% upside potential. However, with the most recent analyst view coming in three days ago, the consensus assessment may change shortly.

On the date of publication, Josh Enomoto did not hold (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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

Article printed from InvestorPlace Media, https://investorplace.com/2023/05/pton-stock-drops-as-peloton-recalls-2-million-bikes/.

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