Despite an already-catastrophic loss of value from its peak valuation, home exercise equipment specialist Peloton (NASDAQ:PTON) incurred another tough blow. This time around, an analyst cast doubt on PTON stock — which slipped about 8% on Wednesday — citing post-pandemic viability concerns. As well, shifting societal trends may impose additional pressure on the once-hot ticket.
According to a Barron’s report, Wolfe Research analyst Zach Morrissey downgraded PTON stock to “underperform” from “peer perform.” In addition, the expert assigned a price target of $6. At the time of writing, shares trade hands at $7.46, indicating substantial downside despite incurring a near-double-digit loss during the midweek session.
Undergirding the pessimistic take is the severe demand fade following the end of the Covid-19 pandemic. At the onset of the crisis, multiple jurisdictions clamped down on non-essential activities. With little recourse, many people turned to home exercise equipment. Naturally, Peloton’s exercise bikes spiked in demand.
However, with that door closing, future opportunities may be limited. “We believe the COVID pull forward of demand could persist for some time and combined with weakening consumer spending trends and higher churn—we see increasing risk of further negative net [subscriber] adds in the future,” Morrissey stated in a research note.
Shifting Societal Trends Cloud PTON Stock
To be completely fair, Morrissey doesn’t view PTON stock as a security completely devoid of hope. For example, the analyst accepts that Peloton’s new digital app could bring in some “incremental users” via cheaper prices. However, the risk of future subscriber declines remains. In addition, Peloton appears to lack significant pricing power.
“The company has made material progress improving its cost structure and liquidity runway recently. However, we are cautious on the ability of recent initiatives to reaccelerate growth in a profitable way,” the analyst remarked.
Adding to the uncertainty for PTON stock may be shifting social trends. For one thing, fear of Covid-19 began fading conspicuously in early 2022. It’s unlikely that this sentiment increased this year. Therefore, Peloton lacks the emotional catalyst of self-protection that helped catapult entities like Carvana (NYSE:CVNA), which enabled contactless car shopping.
Second, The Wall Street Journal reported throughout this year that an increasing number of companies have recalled their employees back to the office. What’s more, technology firms that ironically empowered the ability to work remotely have also requested their workers return to physical campuses, typically under hybrid schedules.
Under this framework, a home exercise bike might not be as relevant due to constrained time and access.
Why It Matters
Interestingly, despite legitimate skepticism, Wall Street analysts overall peg PTON stock as a consensus hold. This assessment breaks down as seven buys, 11 holds and two sell ratings within the past three months. On average, the experts’ price target lands at $11.41, implying over 52% upside potential.
On the date of publication, Josh Enomoto 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.
