Peloton Interactive (NASDAQ:PTON) was one of those stocks you bought when the world was going into lockdown. It had all the ingredients of a company that was going to do well if fitness fanatics were confined to their homes.
In case you are not familiar with Peloton, its primary offering to the cycling-obsessed is an Internet-connected stationary bicycle (or a treadmill) that lets the user take part in online classes, using streaming media.
The pandemic was good for Peloton
The pandemic was good for Peloton stock: going into the pandemic in January 2020 it was trading at $20-$30. COVID took it to a staggering ATH of $171. That looks like it was the time to get out. The peak was achieved just before Christmas 2021, and since then investors seem to have responded by selling Peloton stock as both the US and UK have opened up with aggressive vaccination programs.
There was a big drop, for example, starting on 12 Feb which shaved over $50 off the share price in a couple of weeks.
Peloton has not been without its challenges, other than the world being able to get back on real bikes and cycle on real roads. Its Tread and Tread+ products had to be recalled in May following one death and news from the US Consumer Product Safety Commission that almost 40 people had been injured using the treadmill.
Interestingly, Peloton initially challenged the warnings from the Commission, but was eventually forced into a climbdown. The controversy was enough to take the stock down again, from around $120 to a 52 week low of $66.74. It was a sell-off Peloton stock holders could have done without.
Can Peloton make a come back from Tread disaster?
Since then we have seen the stock clawing its way back, but nothing too exciting. It comes as no surprise to The Armchair Trader that the company was forced to report revenue growth had tapered off. The whole Tread fracas also seems to have hit revenues harder than many investors expected.
This week’s results really don’t make good reading, but for us there is nothing too surprising here. We are not surprised that Peloton is going to cut the price of its original Bike machine by 20%. We are not surprised either that it is focusing again just on its core treadmill sales.
What does surprise us – and this is something Peloton did not need – is that there is a problem with its inventory accounting. This can sometimes occur when companies have to scale up production suddenly to meet demand, and this is certainly what Peloton has been doing during the pandemic. We may not have heard the last of this.
Wall Street disappointed by poor showing
Even Wall Street analysts seem to have been caught on the hop with the dismal results – loss per share was $1.05 against analyst consensus 45 cents. A net loss was posted by the company of $313.2m against net income of $89.1m last summer.
What surprises us is that investors are hanging in there with Peloton. It does have a good business model, but it has been a major beneficiary of lockdown, and with citizens returning to gyms and the wide open road, we do question how it can maintain its current share price?
As an investor, you could be hoping for another lockdown in the US – which we consider unlikely – and even if there was one, a lot of Peloton customers have already bought their hardware. Where would the growth come from to match the glory days of 2020?
