Peloton Interactive (NASDAQ 🙂 is in the news these days for all the wrong reasons. Shares of the tech-based fitness company plummet after the company announced plans to recall its fast-growing treadmills after dozens of injuries and at least one death.
The announcement, made Wednesday by CEO John Foley in a joint statement with the Consumer Product Safety Commission, sent its once-high-flying stock by more than 14%, contributing to a 50% drop since the record $ 171. 09 in January. This dramatic downfall comes after a remarkable year for this New York-based company.
Stocks increased more than 500% in 2020, as home fitness equipment sales soared during the COVID-19 pandemic, forcing many gyms in the US to close. Platoon, which beat every stock in the index last year except Tesla (NASDAQ 🙂 and Enphase Energy (NASDAQ :), became a symbol of fitness for millions of people stuck at home.
But after the failure of one of the fastest growing products, executives will need to demonstrate how they will manage the company's brand damage and sales dents, especially as gyms reopen in full across the US.
For investors, the big question is whether now is the right time to buy PTON shares after this sharp downturn. The company, best known for its exercise bikes and music-packed virtual classes, reported earnings yesterday. Sales for the quarter increased from $ 524.6 million a year ago to $ 1.26 billion, driven by strong demand for its remote training classes and home fitness equipment during the global coronavirus pandemic.
The company predicted that the recall and discontinuation of sales of its two types of treadmills will cost $ 165 million in the current quarter. It also lowered its sales and earnings forecasts for the full year ending June 30. At the time, management wasn't sure when the treadmills would hit the market, but they said demand for its bicycle product, which represents most of its business, remains strong.
Divided Analysts
In revenue calls with analysts over the past few months, Peloton executives stressed the importance of the cheaper treadmill products and said they would eventually become a & # 39; missile ship & # 39; for the company. Credit Suisse in a note on Thursday defended the company's long-term appeal, despite the setback on the treadmill.
“For some, it can be difficult to return products, make software updates, and make manufacturing changes. Platoon's investments and vertical integration are ideal for dealing with these kinds of issues (logistics, Precor, etc.), "the company said, adding that the repair" doesn't seem complicated ".
The company has an outperform rating on Peloton, with a price target of $ 164 for the stock, which is nearly 100% higher than where the stock closed on Wednesday.
Still, Peloton's sudden turnaround divided analysts, with Baird and Stifel saying the sell-off was an overreaction, while Bank of America downgraded its stock rating after the recall.
Of the 29 analysts followed by Bloomberg covering Peloton, all but five of them recommended that investors buy the stock before Wednesday's news. The consensus price target for the stock remains around $ 160 per share.
Bottom Line
The Peloton stock is likely to remain under pressure in the near term as investors focus on the damage caused by the treadmill setback. That negativity is a buying opportunity for long-term investors, according to many analysts, given the company's strong share of the home fitness market, superior technology, and the advantage the company can leverage as a pioneer
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