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Peloton Investors: A 2020 Survival Guide

By Rick Munarriz - Jan 29, 2020 at 11:58AM

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Wall Street analysts are falling for the high-end fitness speedster ahead of next week's financial update.

Peloton (PTON -4.70%) is pedaling in the right direction in 2020. As of Tuesday, the high-end fitness specialist had treated its shareholders to a 10% gain in January -- and that was before a pair of analysts boosted their price target on Wednesday ahead of next week's quarterly report.

The maker of pricey treadmills and stationary bikes began this year just below September's debut price of $29, but it's not a broken IPO anymore. Peloton has recovered impressively since being lampooned for a debatably out-of-touch marketing campaign it debuted during the holiday shopping season, and now that folks are trying to live up to their New Year's resolutions to cultivate more active lifestyles, the company is shaping up to be a smart choice for well-to-do fitness seekers. Last year's results weren't much to write home about for Peloton shareholders, but 2020 seems far more promising.

A Peloton stationary bike user eyeing skyscrapers during a workout session.

Image source: Peloton.

Working up a sweat

Peloton is a beast when it comes to growth. Revenue soared 103% year over year in the first quarter of its fiscal 2020, which ended Sept. 30. It made its first quarterly report as a public company on that period back in November. And even if the pace is expected to  decelerate, the $421.4 million that Wall Street is targeting for the top line in next week's report on the holiday quarter would be a 60% year-over-year gain.

Investors don't seem to mind the slowdown. Peloton had 1.6 million members including 562,774 connected-fitness subscribers at the end of September, and that number naturally rose nicely over the holidays. 

Doug Anmuth of JPMorgan lifting his share price target from $34 to $38 this week -- just as Raymond James' Justin Patterson kicked in with a $4 boost of his own to $36 -- is encouraging. The two analysts are keeping up with the stock's momentum, but acting ahead of the Feb. 5 earnings release is a sign that they're expecting a positive market reaction to it. 

Anmuth lists the stock as one his best investing ideas for 2020 -- he expects Peloton to outperform as a result of content and software enhancements, its push into international markets, and its recent debut of a home trial offer. Peloton began offering 30-day trials in September to encourage fence-straddlers to try its platform, giving them the ability to return the hardware within a month if they're not satisfied. Investors will be hoping next week's report includes some insights as to what kind of retention rate that program has delivered.

Patterson's research indicated that this was a strong holiday shopping season for Peloton, which led him to boost his revenue forecast through at least the next two years. There may be cheaper competitors out there, but he still feels that Peloton is still in the early innings of its market penetration. 

They're not alone in their optimism. Wedbush analyst James Hardiman initiated coverage of Peloton earlier this month with a bullish outperform rating and a $37 price target. He feels it can grow its worldwide audience to 4 million subscribers.

Affordability is going to be a theme for Peloton to tackle in 2020. Its hardware isn't cheap, with price tags of $4,295 for a treadmill or $2,245 for a stationary bike. However, Anmuth expects the company will bring a cheaper treadmill to market later this year. Peloton also recently lowered the price of its subscription plan for folks who want to join without having the connected Peloton hardware.  

Next week's report will obviously set the tone for Peloton's direction this year. Strong growth and engagement trends will go a long way toward keeping the shares from buckling below its IPO price again. It goes without saying that investing in IPO stocks is risky, but right now, you don't want to get in the way of Peloton because -- unlike its stationary bikes -- the stock is going places.

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