Spin classes weren’t novel and working out at home certainly wasn’t new, but Peloton kicked off a revolution of sorts when it brought spin classes into homes in 2012. And it’s not just customers who are eager to get their hands on the distinctive black and red bikes that retail for $1,500 and up. Investors have been eager to take Peloton shares for a ride, even despite some missteps, and the stock has soared more than 70% since its debut.
The New York-based fitness company has branched out from exercise bikes into treadmills (or, “tread,” in Peloton lingo) on its way to a market capitalization that’s currently more than $14 billion. Fitness equipment is just part of Peloton’s business model. The company’s full name — Peloton Interactive Inc. — alludes to the interactive element that has more than 6 million members around the world hopping on a Peloton Bike or a Tread for an at-home workout.
Peloton was among the companies that benefited from the Covid-19 pandemic, as people who couldn’t go to gyms instead bought a Peloton bike or Peloton tread. Sales surged a whopping 172% in the company’s fiscal fourth quarter of 2020. However, it’s been a bumpy ride both for the company and its stock more recently: Peloton voluntarily recalled both models of treads and overall sales have stalled amid the re-opening of the economy and as people return to gyms. In turn, Peloton shares have slumped about 70% in 2021, and are back to pre-pandemic levels. To some investors, that selloff makes Peloton more appealing once again. Here’s how to decide if you should take investing in Peloton for a spin.
Peloton stock (PTON) fundamentals
Peloton is a relatively young company with an even younger tenure in the stock market, but it has quickly captured the attention of investors. The company launched its initial public offering (IPO) in 2019 at $27 a share, and Peloton’s share price quickly pedaled higher. In 2020, the stock surged more than 430%. Pelton has yet to be added to the S&P 500 index (membership depends partly on a trailing four quarters of positive earnings, which Peloton doesn’t have), but it is a member of a key benchmark for large- and mid-cap stocks, the Russell 1000 index. In late-2020, the company was added to the more exclusive Nasdaq 100 index, where it sits alongside the biggest tech companies in the market like Amazon, Apple and Tesla.
Peloton is listed on the Nasdaq stock exchange under the ticker PTON. While its connected fitness subscription business model resembles other technology companies, Peloton’s primary business comes from sales of fitness equipment. As a result, it is grouped in the consumer discretionary sector with other companies in the leisure industry like hotels, restaurants and retailers. Its publicly-traded competitors include Lululemon and Nautilus.
As with any investment decision, it’s important to thoroughly understand the company’s financials before you buy Peloton stock. Start by reviewing Peloton’s latest earnings report, which you can access via the documents all publicly-traded companies are required to file with the U.S. Securities and Exchange Commission (SEC) or on the investor relations section of Peloton’s website. Quarterly documents, along with the company’s annual report and conference calls it hosts, will detail a variety of information about how Peloton’s various business segments are faring, its profit, projections for future sales, and historical comparisons.
With a better understanding of Peloton’s business model, focus on how that information — alongside other news about the company, its competitors and industry trends — affects Peloton’s share price. Some 12 million Peloton shares trade every day, on average, as investors buy or sell based on their outlook for the company’s revenue and its share price. In major financial publications like The Wall Street Journal, Bloomberg and CNBC, you can track news about Peloton, the home fitness industry and broader macroeconomic trends.
Finally, familiarize yourself with key statistics about the stock itself. By entering its ticker on a variety of financial websites, you can quickly access daily and historical performance for PTON stock, as well as its market capitalization, price-to-earnings (PE) ratio and earnings-per-share (EPS) information. You can also find reports written by Wall Street analysts that detail Peloton’s business prospects and investment merits — and can, in turn, affect its stock price.
Peloton’s latest financial results
Peloton’s quarterly earnings reports may dispel some ideas you have about the fitness company. For example, while the company is best known for its pricey bikes, digital subscriptions now account for more than 37% of revenue, up from about 20% one year ago. And the company has had some expensive missteps; recalls of its treadmills totaled nearly $13 million in the most-recent quarter, while litigation and settlement expenses (related to the product recalls and copyright infringement) cost the company $26.5 million.
In its fiscal first quarter, Peloton reported revenue of $805.2 million, a 6% gain from a year ago, but lower than the estimates of Wall Street analysts. What’s more, the company reported a bigger loss ($1.25 per share) than analysts had projected. Citing challenges such as uncertainty surrounding demand amid the re-opening of the economy, supply chain issues and a slower-than-expected quarter, Peloton also slashed its outlook for the fiscal year. Peloton shares fell a whopping 25% immediately after the company reported its most-recent quarterly results and had yet to recoup those losses one month later.
How Peloton stock fits into your portfolio
After Peloton shares reached an all-time high of about $162 in late-2020, the stock’s rapid ascent was followed by a cooldown that mimicked the company’s popular workout classes. More recently, the stock has been trading in a range of about $42 to $100 a share, which makes buying Peloton stock a more affordable endeavor. The company recently announced plans to sell nearly 24 million shares at a discount to generate more than $1 billion in revenue. That said, Peloton has yet to pay a dividend and its valuation (or price-to-earnings ratio) isn’t currently calculated since the company didn’t pay earnings in the three most-recent quarters.
Given some of the company’s recent challenges, some investors may be more keen to invest in Peloton via more indirect routes. In fact, you may already be invested in Peloton shares if you own any index funds that track the Nasdaq 100 or mid-cap benchmarks like the Russell 1000. What’s more, Peloton is among the top 15 holdings in two different exchange-traded funds (ETFs): American Century Mid Cap Growth Impact (ticker: MID) and Roundhill Streaming Services & Technology ETF (ticker: SUBZ).
If you want to directly invest in Peloton, you should consider how becoming a shareholder will help you accomplish your investment goals and how the stock fits into your broader portfolio. If you already have exposure to Peloton via funds, adding more shares could add risk to your portfolio, particularly given the stock’s bumpy ride of-late. What’s more, you may miss out on the benefits of diversification by investing in Peloton in lieu of other assets. That’s why it’s a good idea to consult with a financial advisor before making any major changes to your portfolio.
To some investors, Peloton’s downhill slide in the stock market presents a buying opportunity, while it may serve as a deterrent to other investors. At the very least, Peloton’s recent performance in the market can serve as a good reminder that investing in any individual stock — and those that have a relatively short track record as a publicly-traded company — can be risky. While Peloton shares are less volatile than the broader market, so too is performance: During the past year, Peloton’s stock price fell a whopping 60% while the Nasdaq 100 rose nearly 30%.
How to buy Peloton stock in a brokerage account
Whether you sweat it out every day with your favorite Peloton instructor or just know the company from its commercials, you can become a shareholder in far less time than a workout. If you have an online brokerage account, you have two primary options to buy Peloton stock: Place a market order, which is executed as soon as possible at the current market price, or place a limit order, which lets you specify the maximum price you are willing to pay. Alternatively, if you only want to invest a small amount in Peloton to start out, check if your online broker offers fractional shares. Fidelity, Robinhood and Schwab are among the brokers that allow you to invest less than the full share amount. Finally, you can opt for less direct exposure to Peloton through an index fund or ETF.
You can buy Peloton shares in a matter of minutes, but you should spend more time thinking about how many shares to buy. While the amount of money you have to invest is a good starting point, also consider how it will fit into your portfolio and broader investment goals. While you may know the ins-and-outs of Peloton as a customer, don’t let that cloud your due diligence when investing in the stock. It’s also important to make sure that the money you want to invest doesn’t have a better, short-term purpose, like paying off high-interest debt (such as credit cards) or building up an emergency fund that could cover at least three months of expenses.
As you should when considering buying shares of a company, make sure you calculate how much exposure you already have to this one individual stock. Experts generally recommend limiting your exposure to any one individual stock to a 5% stake, at the most. When investing in individual stocks, about 20 different stocks can make you broadly diversified, along with investments in bonds, funds and alternative assets. A well-diversified portfolio can reduce risks and ensure that the ups-and-downs in a wide variety of assets ultimately dictate your performance rather than being at the whim of just one stock.
Finally, Peloton’s recent stock performance is a good reminder of how quickly a hot stock pick can go cold — and this is true even of stocks with a much longer tenure in the market. While Peloton’s very well could recoup its losses, no one can predict how soon that will happen. That’s why if you buy Peloton shares, you should do so with a long-term investment in mind.
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