Peloton Interactive, Inc. (PTON) provides a connected, technology-enabled interactive fitness platform. The company offers services like instructor-led boutique classes for its customers. Also, its product portfolio includes Peloton Bike, Peloton Bike+, Tread and Tread+, bike mat, heart rate monitor, and dumbbells.

PTON was among the biggest winners during the height of the COVID-19 pandemic. The company’s home exercise equipment and subscription-based fitness classes were a huge hit as its subscribers grew from 700,000 to nearly 3 million during that period. However, the stock lost its sheen with the end of lockdown restrictions and rapid vaccinations.

PTON has been hit hard by weakening demand and softening sales as people returned to gyms and physical fitness sessions. Its average monthly workouts per Connected Fitness subscription have plummeted 43% from its peak of 26 to 14.8 during the previous quarter. Its total platform workouts have declined 20% sequentially and 4% year-over-year to 148.20 million.

PTON’s EPS and revenue failed to beat consensus estimates in the last reported quarter. The company’s loss per share came in 70.7% higher than the consensus estimates of $0.77. Also, its revenue missed analyst estimates by 0.6%.

The company is partnering with Amazon to sell its products on the platform to grow its customer base. However, the company’s troubles are evident in its cost-cutting measures. It laid off 760 employees to contain costs.

For the fiscal 2023 first quarter ending September 30, 2022, PTON expects its total revenue to come in the range of $625 to $650 million, indicating a decline of 21% year-over-year.

PTON’s stock has declined 71.2% in price year-to-date and 89.7% over the past year to close the last trading session at $10.28. It is trading 91.4% below its 52-week high of $118.61, which it hit on September 10, 2021.

Here’s what could influence PTON’s performance in the upcoming months:

Disappointing Financials

PTON’s revenue declined 27.5% year-over-year to $678.70 million for the fourth quarter ended June 30, 2022. The company’s cost of revenue increased 3.8% year-over-year to $708.50 million. Its total operating expenses increased 110.7% year-over-year to $1.17 billion.

Also, its net loss widened 297.3% year-over-year to $1.24 billion. In addition, its loss per share widened 250.5% year-over-year to $3.68.

Unfavorable Analyst Estimates

Analysts expect PTON’s EPS to remain negative in fiscal 2022 and fiscal 2023. Its revenue for fiscal 2022 is expected to decline 14.6% year-over-year to $3.06 billion. Its EPS is expected to decline 76.5% per annum over the next five years.

Stretched Valuation

In terms of forward EV/S, PTON’s 1.50x is 36.4% higher than the 1.10x industry average. Likewise, its 10.59x forward P/B is 333.3% higher than the 2.44x industry average. And the stock’s 1.14x forward P/S is 29.6% higher than the 0.88x industry average.

Lower-than-industry Profitability

PTON’s trailing-12-month net income margin is negative compared to the 5.99% industry average. Likewise, its trailing-12-month EBIT margin is negative compared to the 8.46% industry average. Furthermore, the stock’s 0.84% trailing-12-month asset turnover ratio is 18.9% lower than the industry average of 1.04%.

POWR Ratings Reflect Bleak Prospects

PTON's overall F rating equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PTON has an F grade for Quality, in sync with its lower-than-industry profitability.

It has a D grade for Stability, consistent with its 1.42 beta. Furthermore, the unfavorable analyst estimates justify the F grade for Sentiment. It has a D grade for Value, in sync with its stretched valuation.

PTON is ranked #57 out of 59 stocks in the Consumer Goods industry. Click here to access PTON’s ratings for Growth and Momentum.

Bottom Line

PTON is trading below its 50-day and 200-day moving averages of $10.56 and $23.10, indicating a downtrend. PTON is witnessing softening sales with falling consumer demand. The current uncertain macroeconomic environment is expected to exacerbate its problems further.

Given its poor financials, unfavorable analyst estimates, stretched valuation, and lower-than-industry profitability, it could be wise to avoid the stock now.

How Does Peloton Interactive, Inc. (PTON) Stack Up Against Its Peers?

PTON has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Consumer Goods stocks with an A (Strong Buy) or B (Buy) rating, such as Mannatech, Incorporated (MTEX), Ennis, Inc. (EBF), and Société BIC SA (BICEY).

PTON shares were trading at $9.69 per share on Friday morning, down $0.59 (-5.74%). Year-to-date, PTON has declined -72.90%, versus a -14.97% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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