Peloton Interactive (PTON) is arguably one of the hottest names in the fitness space. With more than 3.1 million members, the nine-year-old global brand is looking to expand its reach. Peloton stock was one of the bright spots in the coronavirus stock market rally, with a gain of more than 440% in 2020.
“The world changed with Covid,” Peloton CEO John Foley said in an interview last September. “We plan to be the global digital fitness technology platform that allows you to work out at home and not have to travel.”
Peloton generates most of its revenue through sales of bikes and treadmills, which range in price from $1,895 to $4,295. The All-Access membership for owners of its expensive equipment runs $39 a month. A digital membership — with no access to bike or tread classes — is $12.99 a month.
Peloton’s at-home workout platform became popular with fitness enthusiasts and investors as Covid shutdowns fueled the company’s growth.
Can Peloton stock keep pace as increased vaccination efforts and global reopening plans commence? So far, Peloton executives say they haven’t seen a decrease in demand.
“We still have not seen any softening since that vaccine was announced and since the vaccine has been rolling out,” CEO Foley said on Peloton’s Feb. 4 earnings call. “So other than investors getting nervous, the consumers are still feeling like they want to work out at home.”
Is Peloton stock a buy now? It’s key to analyze fundamental and technical metrics first.
Peloton Stock Dives Amid Safety Concerns
Safety concerns over Peloton’s treadmill products sent shares tumbling well below their 10-week line. Peloton stock fell 14% the week of April 21 after the U.S. Consumer Product Safety Commission (CPSC) issued an urgent safety warning to customers.
This warning comes on the heels of a reported incident in March after a child died in an accident involving the $4,295 treadmill. On April 17, the CPSC said it had learned of 39 incidents involving the popular treadmill product. These include “multiple reports of children becoming entrapped, pinned, and pulled under” the product.
Peloton pushed back on CPSC’s claims, calling them “inaccurate and misleading” in a prepared release. The company added that there was “no reason to stop using the Tread+” product as long as “all warnings and safety instructions are followed.”
Peloton’s CEO said in a letter to customers that the company currently has no plans to halt sales of the treadmill or recall equipment.
Peloton Pumps Up Expansion
Peloton has seen a flurry of buying activity around companies specializing in AI, wearables and hardware. The company revealed the purchases in a regulatory filing made public on March 22.
The fitness platform disclosed it paid a total of $78.1 million cash for three companies during the final quarter of 2020. These companies include Atlas Wearables, Otari and Aiqudo. The Aiqudo deal, which closed this year, is not included in that amount.
Bloomberg reports that the deals allow Peloton to potentially expand their service offerings through new digital services and hardware. The new acquisitions could give the company the ability to develop a digital assistance or smartwatch brand line.
Shares of Peloton jumped on March 9 as the fitness platform announced plans to launch in Australia. The move, which is expected in the second half of 2021, would be the company’s first expansion to the Asia-Pacific region.
Peloton will sell its original Peloton Bike, the Peloton Bike+ and its fitness app in stores across Australia. The fitness brand currently has locations in the U.S., UK, Canada and Germany.
PTON stock soared more than 12% on Dec. 22 after Peloton announced the acquisition of fitness equipment maker Precor. The $420 million deal will bolster Peloton’s manufacturing capabilities and will accelerate production and delivery windows for its popular workout machines.
Peloton Stock Earnings
Peloton Q2 earnings, reported on Feb. 4, were better than expected. Peloton’s earnings surged to 18 cents per share — a 190% increase — on revenue of $1.06 billion.
Wall Street anticipated the fitness brand to report earnings per share of 10 cents on revenue of $1.02 billion. However, Peloton stock failed to get a meaningful boost from the quarterly report.
Connected fitness subscriptions grew 134% to 1.67 million. Paid digital subscriptions skyrocketed 472% to about 625,000.
“Digital continues to be a high-growth sales channel for connected fitness products,” Foley said on the Feb. 4 earnings call. “We will continue to build on the success of our strength content pillar over the coming quarters.”
Production delays for the popular bicycle and treadmill products continue to hold Peloton back. The company reiterated investments in developing U.S.-based supply chains and its recent acquisition of Precor Fitness to speed up delivery times.
“Our acquisition of Precor will allow us to produce Peloton products here in the U.S. and fast-track our ability to build a large domestic manufacturing footprint over time,” Foley said.
Peloton’s next quarterly report is due in May.
Peloton News: Partnerships, Competitors
Peloton also has been busy on the partnership side with new deals. An agreement with the popular web series Verzuz was announced on March 29. The deal would add Verzuz content to Peloton’s rapidly expanding musical artist-themed class offerings. A similar partnership with Beyoncé was announced last November.
The popular bike and treadmill maker also inked a deal with Adidas (ADR) on an apparel collaboration. The new merchandise went on sale March 25 on both Adidas and Peloton retail outlets. The collection was designed by a group of Peloton’s top instructors and ranges in cost from $30 to $85.
And in November, shares also got a boost when Peloton announced a partnership with recording artist Beyonce. The partnership will culminate with themed workout classes and donations of Peloton digital memberships to students of historically Black colleges and Universities. December also saw the launch of the highly requested Pilates vertical of the Peloton digital studio.
But Apple (AAPL) is looking to step in as a viable competitor in the digital fitness space with Apple Fitness Plus. The subscription fitness app from Apple launched on Dec. 14 and includes recorded classes that can be accessed through Apple products. However, subscribers must own the Apple Watch.
“We’re excited for Apple Fitness+ to bring together the metrics from Apple Watch, great music, and a diverse and inspiring trainer team — in a uniquely simple, easy-to-access way across Apple devices,” Apple’s senior director of fitness Jay Blahnik said in a company news release on the new platform.
Peloton Stock Fundamental Analysis
To determine whether Peloton stock is a buy now, fundamental and technical analysis is key.
The IBD Stock Checkup tool shows that PTON stock has an IBD Composite Rating of 83 out of a best-possible 99. The rating measures a stock based on the most important fundamental and technical stock-picking criteria.
The Composite Rating looks at earnings and sales growth, profit margins, return on equity and relative stock price performance, among other metrics.
After its big run last year, Peloton stock holds a Relative Strength score of 79. Stocks with scores above 90 for both Composite and RS are typically worthy of further analysis to determine whether they’re buyable.
But, investors shouldn’t solely rely on the RS Rating since it tracks a stock’s past year of performance. A stock could be down tremendously in recent weeks after a huge run-up, like Peloton, and still have a strong RS rating.
Peloton stock has an EPS Rating of 73 out of 99. The EPS rating compares a stock’s quarterly and annual earnings-per-share growth with that of all other stocks. Relatively recent IPOs typically don’t have a long track record of earnings growth — or profitability. But Peloton’s profits are expected to more than double in 2021.
The industry group currently ranks No. 20 among the 197 groups IBD tracks. Focusing on industry group strength, and improvement in industry group rank, is ideal when selecting stocks for your watchlist. You also want to focus on top stocks within those leading groups showing strong technical action.
PTON Stock Technical Analysis
Peloton stock made its Nasdaq debut on Sept. 2019 at 29 a share. Shares quickly formed a cup-with-handle base and ran up more that 80% from the bottom of that base to hit a peak of 37.02 in December 2019.
Peloton stock then receded from those highs, hitting a low of 17.70 in March 2020 — the bottom of the coronavirus stock market crash. Bolstered by the stay-at-home orders and gym closures, Peloton stock began to skyrocket. Shares consistently held the 21-day moving average as Peloton surged to a 139.75 high by mid-October, a gain of nearly 700% from its March lows.
Peloton stock then began building a base as it broke below its 50-day moving average on positive coronavirus vaccine news last November. But Peloton stock quickly rebounded, moving above an early entry on Dec. 14 as it cleared a declining-tops trend line.
On Dec. 18, Peloton stock broke out of a base with a 139.85 buy point. But with a widespread market sell-off in late February, it has sharply pulled back from its all-time highs in mid-January.
Peloton stock closed 8% below the 10-week line the week of Feb. 19, which is a decisive sell signal for position traders. That’s because this action typically indicates a stock is ready to take a break and, at the very least, form a new base.
Now, Peloton is trading well below its 200-day line after safety concerns sent shares tumbling some 14% the week of April 21.
Peloton Stock: A Buy Right Now?
The long-term outlook for Peloton remains compelling — especially if the company can find solutions to its supply issues. Forward-looking earnings estimates are encouraging. But the technical picture has weakened as money rotates into economic recovery plays.
Bottom line: Peloton stock is not a buy as it is not in a buy zone. It undercut its 50-day line in February despite strong earnings, and is now almost 10% below its 200-day moving average. While some may say Peloton stock is “on sale,” IBD’s research shows that focusing on stocks in uptrends and trading above their upward-sloping moving averages increases the odds of success with a trade.
Investors interested in Peloton could add the stock to their watchlists and see if it sets up another buying opportunity in the future. With sharp declines over the last several months, that could take a while.
Follow Alexis Garcia on Twitter at @IBD_Alexis.
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