Is Peloton a Buy After Its Recent CEO Shakeup?

Peloton Interactive (NASDAQ:PTON), the fitness company that gathered widespread interest during the pandemic while people were locked inside and looking for exercise, made lots of noise on Wall Street this week.

Peloton (PTON stock) sign on city storefront

Source: JHVEPhoto / Shutterstock.com

Investors flocked to the stock on Monday, sending shares soaring as high as 25% on speculation that the company could be the acquisition target of a major tech giant like Amazon (NASDAQ:AMZN) or Apple (NASDAQ:AAPL), or other large companies like Sony Group (NYSE:SONY), The Walt Disney Company (NYSE:DIS) or Nike (NYSE:NKE).

Peloton investor Blackwells Capital, which owns less than 5% of the company, recently sent a letter to Peloton’s board suggesting a sale in light of the company’s production struggles, a safety recall, flagging demand and the stock’s 79% fall since its 52-week high on Feb. 16, 2021.

On Monday, the stock closed just above its Sept. 26, 2019, IPO price of $29 per share. But then on Tuesday shares rebounded, soaring as much as 30% as the company announced major changes, as well as its financial results for its second quarter (more on those in a moment).

Peloton has replaced CEO John Foley with the seasoned tech executive Barry McCarthy, a former chief financial officer of Spotify Technology (NYSE:SPOT) and Netflix (NASDAQ:NFLX).

McCarthy is known for advocating for Spotify’s direct listing instead of an initial public offering to go public. He also served for more than 10 years as the CFO at Netflix, helping take the company public as well as transition from video rentals to online streaming.

The company also said it would cut 2,800 corporate jobs, or roughly 20% of its corporate workforce, while keeping its instructors and content creators. It will also cut back on its delivery teams and its warehouse footprint, including the company’s plans for its $400 million factory, Peloton Output Park, in Ohio. Peloton also said it will trim about $800 million in annual costs and cut capital expenditures by about $150 million in 2022.

Peloton is adding two new directors to its board as well. Angel Mendez, who leads a private artificial intelligence (AI) company, and Jonathan Mildenhall, the former chief marketing officer of Airbnb (NASDAQ:ABNB).

Now, in regard to Peloton’s second-quarter results, there wasn’t good here either, as the company missed analysts’ expectations on the top and bottom lines.

For the second quarter in fiscal year 2021, Peloton reported an earnings loss of $1.22 per share, which was 33% below Wall Street’s expectations for a loss of 92 cents per share, as well as the 21 cents per share the company earned a year prior.

Revenue of $1.13 billion was about 6% higher than a year ago but fell below analysts’ expectations for $1.15 billion by 1.5%. Particularly disappointing was the revenue figure for its connected fitness segment, which dropped 8% from a year ago to $796.4 million.

The company also revised downward its fiscal 2022 revenue range from $3.7 billion to $3.8 billion, from $4.4 billion to $4.8 billion. It also expects to have three million connected fitness subscribers in fiscal 2022, down from its prior forecast of 3.35 million to 3.45 million.

“We are taking steps to best position Peloton for sustainable growth, while also establishing a clear path to consistent profitability,” the former CEO Foley told shareholders.

So, now that the company is attempting a big turnaround, is it a fundamentally superior stock and a good buy right now?

Let’s see how the company stacks up in my Portfolio Grader.

As you can see, the stock earns a Total Grade of “F,” Quantitative Grade of “F” representing institutional buying pressure under the stock, and a Fundamental Grade of “F.”

In fact, the stock has earned an overall “F” in my Portfolio Grader since October 2021.

While the stock did rally post-earnings, the reality is its fundamentals are weak and institutional buying pressure is dwindling. So, I don’t believe the strength has any real staying power.

The fact of the matter is the companies that do have strong staying power are those that post strong earnings results and issue positive guidance.

This holds true for my Growth Investor companies. My average Growth Investor stock is characterized by 33.4% annual sales growth and 45.6% annual earnings growth. I should add that the analyst community has revised their consensus earnings estimates 12.1% higher in the past three months. And you know what that means: They should bounce like “fresh tennis balls” when they announce better-than-expected fourth-quarter results in the upcoming weeks.

I should add that while 76% of S&P 500 have announced an earnings surprise, my companies are doing much better. In fact, I have a 95% earnings surprise batting average.

To learn more about my latest thoughts on earnings season, consider signing up for Growth Investor now. Once you do, I’ll send you my special reportsThe Kings of Scalability: 2 Must Own Stocks to BUY NOW, The Network Effect: The Most Powerful Wealth Creation Force in History, Portfolio Destroyers: 10 Ticking Time Bombs to Sell Now and The #1 Investment for the Coming 5G Revolution — yours absolutely free.

You’ll also have full access to all my recommendations, Top Stocks list, Special Market Podcasts and much more. For full details, click here.

Sincerely,

Signed:

Louis Navellier

P.S. There is a great divide opening up in America — and investing in my Growth Investor stocks will help get you on the right side of it. On one side is a new aristocracy that’s amassing more wealth more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.

On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.

What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.

Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.

It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.

It doesn’t matter if you have $500 in savings or $5 million. You can benefit from the information in this video.

It’s free to watch, and by doing so, I know you’ll be ahead of everyone else struggling to understand what is really going on.

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Amazon.com, Inc. (AMZN), The Walt Disney Company (DIS), Nike, Inc. (NKE)


Article printed from InvestorPlace Media, https://investorplace.com/market360/2022/02/is-peloton-a-buy-after-its-recent-ceo-shakeup/.

©2022 InvestorPlace Media, LLC