Buy Peloton (PTON) Stock on the Dip Before Earnings?

Benjamin Rains
·5-min read

Peloton PTON shares have fallen over 20% since the middle of October, as part of a broader market pullback amid election uncertainty and a rise in coronavirus cases in the U.S. and Europe. That said, the high-tech workout bike company is still up over 280% in 2020 and it is built for continued growth beyond the pandemic.

New Workout Age…

Peloton was founded in 2012 and went public in 2019. The firm sells connected bikes that give users the ability to follow along with classes on connected TV monitors. PTON in early September announced new offerings and a change to its pricing model. The company’s new Peloton Bike+ and the Peloton Tread+ cost more and are set to offer members “new ways to combine cardio and strength training.”

PTON lowered the price of its original Peloton Bike to $1,895, which marked a 16% discount against its original price and 25% below the new Bike+ that starts at $2,495. Meanwhile, its Tread+ costs $4,295, with the other treadmill at $2,495.

Perhaps, more importantly, PTON makes money from its $39 per month All-Access Memberships, while consumers who don’t own Peloton equipment can pay $12.99 a month for a digital membership that allows them to take classes for indoor cycling, running, strength, and more.

The high-end, high-tech home workout company attracted more customers as gyms closed around the country. Clearly, the coronavirus continues to hamper businesses that are based on people being in close quarters, from airline travel to movie theaters. And it’s hard to imagine that people will race back to gyms even when things return closer to normal. This could propel Peloton’s growth for a while, especially if people come to enjoy the convenience of at-home workouts.

The New York-based company was also growing before the virus, alongside a group of higher-end connected fitness products. This includes Mirror, which athleisure giant Lululemon LULU is set to buy $500 million, as well as other bikes, rowing machines, and more. Meanwhile, Nautilus NLS and its home-gym portfolio that includes Bowflex, Nautilus, Octane Fitness, and Schwin, has seen its stock skyrocket over 1,000% in 2020. Apple AAPL is also diving deeper into the fitness world, as part of its larger services expansion.

 

 

 

 

 

 

 

 

 

 

 

 

What Else…

PTON stock has fallen about 20% since the middle of October and it has seen some downgrades, including from Goldman Sachs. Analyst Heath Terry lowered his rating from a “buy” to “neutral,” pointing to shipment delays and its overheated price. Yet, the analyst actually lifted his 12-month price target to $140 from $138.

Peloton currently has a message posted on its website letting potential customers know that they should expect delays, which speaks to higher demand and manufacturing backlogs. “Most bike delivery times are 5 to 10 weeks. Bike+ delivery times may exceed 12 weeks,” according to the company’s website. Longer wait times for delivery and installation have become common during the pandemic. But this hasn’t stopped the company from posting eye-popping sales figures.

Last quarter (Q4), the company’s revenue soared 172% to $607.1 million. Plus, its full-year fiscal 2020 revenue surged 100% to $1.8 billion, which marked an impressive follow up to 2019’s 110% expansion. Meanwhile, its connected fitness subscriptions jumped 113% to over 1.09 million and paid digital subscriptions grew 210% to over 316K. It is also worth noting that people appear to really be working out, with connected fitness subscription workouts up 333% in Q4 to over 76.8 million.

Despite its recent decline, PTON is up 360% in the last year and 60% in the last three months. PTON trades at 8.3X forward 12-month sales. This marks a discount to Lululemon’s 8.6X and fellow pandemic high-flyer Zoom Video’s ZM 46.7X.

 

 

 

 

 

 

 

 

 

 

Outlook

Zacks estimates call for Peloton’s first quarter FY21 revenue to jump a whopping 219% to come in at $728.1 million. Peeking further ahead, PTON’s fiscal 2021 sales are projected to soar another 98% from $1.8 billionto reach $3.61 billion—with FY22 set to climb another 34%, or $1.2 billion higher to $4.83 billion.

Alongside its impressive top-line outlook, Peloton is projected to swing from an adjusted loss of- $1.29 per share to +$0.13 a share in the first quarter. This trend is expected to continue for the full-year, with it expected to climb from a loss of -$0.32 a share to +$0.25, and then soar to +$0.55 in FY22.

Bottom Line

Peloton is a Zacks Rank #3 (Hold) heading into the release of its first quarter fiscal 2021 financial results on Thursday, November 5. And the nearby chart shows that its longer-term earnings revisions have climbed over the last 60 days. PTON also earns an “A” grade for Growth in our Style Scores system and its Leisure and Recreation Products industry rests in the top 18% of our over 250 Zacks industries.

All that said, it might be best for investors to wait for Peloton’s results, given the current market uncertainties. Nonetheless, Peloton appears to be a solid longer-term play for its ability to expand during the coronavirus and beyond, especially as it sits 20% off its highs.

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