Stock peloton: ready to row higher?

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Platoon shares (PTON) have been demolished since peaking in December 2020. The stock has lost more than 90% of its value from peak to peak as the pandemic surge in demand led to a nasty hangover after the removal of blockages.

These days the masks are being taken off and people are going back to their gyms. Despite price cuts and intriguing new deals, Peloton has shown signs that it continues to suffer from post-lockdown hangovers. People are out of the house and they are probably in no rush to get home.

Eventually, demand will normalize and Peloton may find its shares rising. Indeed, rumors of potential interest in a takeover propelled past moves higher. However, I still believe that the exercise equipment manufacturer can support higher movement under their own feet.

You see, Peloton isn’t just a maker of stationary bikes. It’s also a media company with a pretty sticky user base. Additionally, the company has branched out into other product categories, including apparel, treadmills, and most recently, rowing machines.

On Friday, PTON shares jumped more than 16% on the company’s highly anticipated rower tease. Without a doubt, Peloton is expanding its list of exercise equipment. Once post-pandemic demand for home gear normalizes, I see Peloton as an intriguing contrarian game.

After so much damage in the rear view mirror, I remain bullish on the stock. However, a potential recession could still weigh on demand for expensive discretionary goods for some time to come.

Can the Peloton rower get out of hot water?

Peloton’s big reveal was met with huge applause from investors. Despite the big relief bounce, Peloton’s stock remains within a country mile of its highs. Unfortunately, the company’s $5.27 billion shares will likely never eclipse $150 in this decade. Still, that doesn’t mean the stock can’t perform from here after its abrupt valuation reset.

The rowing machine is the latest addition to its offer. However, it’s hard to imagine anyone other than Peloton’s most dedicated fan looking forward to placing an order here. Many investors are worried about a hard landing in the economy following the Federal Reserve’s rate hikes. If we’re heading into a recession, the last thing on anyone’s mind is buying another expensive piece of exercise equipment.

There’s no denying Peloton’s economic sensibility. However, with many accumulated savings and the possibility of a less severe recession than expected, it is possible that PTON stock has been priced in a bearish scenario.

Peloton’s product expansion is encouraging, although the timing may be questionable. With such a low bar in front of it, perhaps Peloton’s stock isn’t the worst stock to bottom fish these days.

While the rower is unlikely to bottom in the stock here, I’m a fan of the risk/reward ratio from a longer-term perspective. Peloton has a plan, and coming out of the next downturn, discretion might pick up some momentum.

Another weak quarterback could weigh a little more

After another quarterly disappointment, it’s hard to find a reason to back Peloton on its plunge. The company posted a broader per-share loss of $2.27 versus $0.84 for the third quarter. Supply chain constraints and the impact of inflation weighed heavily on the numbers.

Additionally, Peloton still seems to be suffering from low demand, thanks to the pandemic surge. Undoubtedly, the big pandemic push of 2020 could weigh many more quarters to come. Revenue fell nearly 24% to $964 million, off the low end of management’s initial guidance of $0.95 billion to $1 billion.

Despite weak hardware, subscription sales increased 55%, beating expectations. Clearly, the company has a lot of dedicated fans who aren’t about to cancel their subscriptions anytime soon. The real challenge for Peloton is to sell to these customers while continuing to develop its equipment offer.

Pending a disastrous launch like the one suffered by the Tread, the Peloton rower should help rekindle some interest in the fallen pandemic star. Either way, I don’t think investors will be rushing to bottom out the stock just yet, as rate hikes start to slow economic growth.

The Taking of Wall Street

As far as Wall Street is concerned, PTON shares are looking like a moderate buy. Out of 26 analyst ratings, there are 15 buys, 10 holds and one sell recommendation.

Peloton’s average price target is $22.96, implying an upside potential of 46.8%. Analyst price targets range from a low of $11.00 per share to a high of $40.00 per share.

The essentials on Peloton stock

Peloton hasn’t had much to do lately. The exit of the rower should help reduce the impact of the drop in income. Still, until the economy can flex its muscles, I don’t see PTON’s stock heading much higher anytime soon.

Either way, look for the company to keep creating new products and innovations. Maybe a resistance training product is next? Such innovations are likely to be in high demand again once the economy is ready for its next round of expansion.

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