With a $2.78 billion market cap, Peloton Interactive, Inc. (PTON) operates an interactive fitness platform in North America and internationally. The company provides various connected fitness products under the Peloton Bike, Peloton Bike+, and Peloton Tread+ names. In addition, it offers connected fitness subscriptions and access to live and on-demand classes.

At-home workout provider PTON was a big coronavirus winner. The company’s home exercise equipment and subscription-based fitness classes were in massive demand during the pandemic. But after reaching a peak in January 2021, the stock has been on a downhill ride as consumer behavior leaned back to pre-pandemic norms with easing COVID-19 restrictions.

PTON has been hit hard by slowing consumer demand as people returned to traditional gyms and physical fitness sessions. The company reported lower sales, negative gross margin, and wider operating losses for the fiscal 2022 fourth quarter. Its net loss and loss per share stood at $1.24 billion and $3.68, respectively. This marks the company’s sixth consecutive quarter of losses.

Furthermore, PTON’s member count dropped. The company’s net-connected fitness subscription additions of 4,000 during the fourth quarter compared with 250,000 additions in the year-ago quarter. Its total platform workouts came in at 148.2 million, down 20% sequentially and 4% from the prior-year period.

In addition, its average monthly workouts per connected fitness subscription plummeted 21% sequentially and 26% year-over-year to 14.8.

The connected fitness equipment maker is attempting to cut costs through massive layoffs and strategic shifts. For the first quarter of fiscal 2023 (ending September 30), the company expects the subscribers count to stay flat and revenue to range between $625 million and $650 million, which is short of analyst estimates.

PTON has declined 76.7% in price year-to-date and 91.1% over the past year to close the last trading session at $8.20. The stock is trading 91.8% below its 52-week high of $99.36, which it hit on October 26, 2021.

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

Deteriorating 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% from the year-ago value to $708.50 million. Its total operating expenses increased 110.7% year-over-year to $1.17 billion. Its adjusted EBITDA came in at a negative $288.70 million, worsening 540.1% year-over-year.

Furthermore, PTON’s net loss widened 297.3% year-over-year to $1.24 billion, while its loss per share came in at $3.68, worsening 250.5% year-over-year. The company’s cash outflow from operating activities and free cash outflow were $359.90 million and $411.90 million, respectively.

Bleak Growth Prospects

Analysts expect PTON’s revenues to decline 20.7% year-over-year to $638.95 million in the fiscal 2023 first quarter (ending September 2022). The consensus loss per share for the ongoing quarter is expected to come at $0.67. Also, the company missed the consensus revenue estimates in each of the trailing four quarters.

Furthermore, the consensus revenue estimate of $3.06 billion for the fiscal year 2023 (ending June 2023) indicates a decline of 14.6% from the previous year. Also, analysts expect the company’s loss per share to come at $2.21 for the current year.

Frothy Valuation

In terms of forward EV/Sales, PTON’s 1.27x is 24.6% higher than the 1.02x industry average. Likewise, its forward Price/Sales of 0.91x is 13.9% higher than the 0.80x industry average. And the stock’s 8.78x forward Price/Book is 279.3% higher than the 2.32x industry average.

Low Profitability

PTON’s trailing-12-month gross profit margin of 19.49% is 46.3% lower than the 36.32% industry average. Its trailing-12-month EBIT margin of negative 42.42% compares to the 8.17% industry average. And the stock’s trailing-12-month net income margin is also negative compared to the 5.86% industry average.

In addition, the stock’s ROCE, ROTC, and ROTA of negative 240.96%, 30.47%, and 70.19% compare to the industry averages of 14.98%, 6.91%, and 5.09%, respectively. Its 0.84% trailing-12-month asset turnover ratio is 18.60% lower than the industry average of 1.03%.

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 Sentiment, in sync with its weak revenue and earnings growth estimates.

The stock has a D grade for Value, consistent with its higher-than-industry valuation metrics. Furthermore, its beta of 1.69 justifies the Stability grade of D.

PTON is ranked #58 out of 60 stocks in the Consumer Goods industry. 

Beyond what I have stated above, we have also given PTON grades for Quality, Growth, and Momentum. Get all PTON ratings here.

Bottom Line

Connected fitness equipment maker PTON incurred huge losses in the fiscal 2022 fourth quarter as sales slumped and costs mounted. Moreover, the market for connected fitness is expected to remain challenging for the foreseeable future amid weakening consumer demand and an uncertain macro environment.

The stock is currently trading below its 50-day and 200-day moving averages of $10.51 and $20.03, indicating a downtrend. Given PTON’s disappointing 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) rating, such as Mannatech, Incorporated (MTEX), Ennis, Inc. (EBF), and Kimberly-Clark de México, S. A. B. de C. V. (KCDMY).

PTON shares fell $0.04 (-0.49%) in premarket trading Wednesday. Year-to-date, PTON has declined -77.07%, versus a -22.61% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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