It was a gloomy start to the year for the high-flying Peloton Interactive (NASDAQ 🙂 stocks. Shares of the tech-based fitness company are down more than 25% so far in 2021, after up about 500% last year.
This performance is far worse than the ARK Innovation ETF (NYSE :), a benchmark for companies offering disruptive technologies. That ETF is up about 5% this year despite a wide sell-off of growth-focused stocks in recent weeks.
The drop in the number of Peloton shares this year reflects concerns of some investors that the short-term spike in this New York-based company will be over, following the COVID-19 lockdowns that led to significant growth in the market. home fitness market, with many gyms in the US remaining closed.
The current bearish period of Peloton, in our opinion, reflects both short- and long-term factors that keep investors on the sidelines. In the short term, Peloton is struggling to keep up with the rising demand for its fitness equipment.
For the quarter ending December, there was a shortage of supply for the company's popular bicycle models, as the company said customers had longer wait times than "acceptable". had to make.
In a conference call with analysts, Chief Executive Officer John Foley said the rollout of the company's new treadmill will be delayed. In most of the US, the machine will be launched in May, rather than the end of March. This is to meet demand in other regions, including the UK, where the new model was launched in December.
Super Growth Cycle
Peloton made its largest acquisition in December when the fitness equipment manufacturer purchased Precor for $ 420 million to improve its US manufacturing capabilities. It plans to spend more than $ 100 million on air and expedited sea delivery in the first half to fulfill orders.
Despite the setbacks in supply, the latest figures from Peloton show that it remains on a super growth trajectory. At the end of December 31, it was fluctuating in earnings. Sales grew 128% from a year earlier, with quarterly sales of more than $ 1 billion for the first time.
Connected fitness subscriptions – users who pay for classes on Peloton equipment – were up 134%, while paid digital subscriptions – people who subscribe to classes on smartphones and other devices – were up a whopping 472%. Peloton now has more than 4.4 million users.
In the long run, however, an important question is whether Peloton is just a COVID story. Once the pandemic subsides, how will PTON maintain its growth momentum when people return to gyms?
One way to look at Peloton's future growth potential: the company's expensive products create stickiness. Someone who spends more than $ 2,000 on a spin cycle to use at home is less likely to quit and return to a busy gym.
Platoon chief financial officer Jill Woodworth told the Wall Street Journal in a recent interview:
"The fitness market is huge and can accommodate many players, both physical and online connected fitness."
“We believe we have a great starting job for growth. We think there is a fairly large percentage of the population who probably will not or never return to a gym. So for us, it's important to expand our affiliate fitness memberships as soon as possible to maintain our advantage as a first-mover. "
Analyst consensus on a price target shows that Peloton's stock could rise 30% from its current level to $ 166.35 a share in the next 12 months if it is able to overcome its supply constraints and subscriber base.
Bottom Line
Peloton stocks are likely to remain under pressure in the near term as investors look for signs that supply restrictions are being resolved. That short-term negativity is, in our opinion, a buying opportunity for long-term investors, given the company's strong share of the home fitness market, superior technology, and pioneer advantage, which will be hard to dispute.
