Shares of Peloton Interactive (NASDAQ:PTON) are back near all-time highs.

The maker of the $2,245 stationary bike has seen its stock soar in recent weeks as investors have turned bullish potential on the high-end exercise company due to its role in the "stay-at-home" economy. With most Americans under stay-at-home orders, the thinking goes, more people have turned to Peloton to help get their daily workout in.

While there is some anecdotal evidence of increased interest in Peloton's product, the company itself has yet to share any data on its performance since the pandemic swept the nation. Even if the company is getting a significant tailwind from Americans being cooped up inside their homes, Peloton faces several risks over the coming months that investors shouldn't ignore. Let's take a closer look.

A woman riding a Peloton bike in her bedroom

Image source: Peloton.

Pent-up demand will go the opposite direction

The incentive to buy a Peloton bike or treadmill right now is temporary. Eventually, stay-at-home orders will be lifted and life will start to return to normal. Americans are already tiring of being stuck inside their homes, and most are anxious to give up the rituals like Zoom conference calls and FaceTime check-ins that have become a staple of life during the crisis. There's likely to be similar momentum in exercise. Once Americans have options like going to a live class or visiting a gym again, they will be eager to take advantage of those. 

It's also hard to compete with free, and the COVID-19 outbreak seems to have sparked a boom in outdoor activities like running and cycling outdoors. With pleasant spring weather arriving across the country, the appeal of stepping outside for a hike or any kind of socially distant exercise is even more appealing.

Exercising from the comfort of your own home has been one of Peloton's advantages, but after the pandemic that could become a disadvantage as Americans will have pent-up demand for activities outside of the home.

A recession is already here

If you're one of the 16 million Americans who have filed for unemployment in the last three weeks, one of the millions more who have unofficially lost their jobs, or are just having job insecurity, you're unlikely to be in the market for high-priced exercise equipment now. Based on unofficial estimates, the unemployment rate is already in double digits and will keep increasing as long as shutdown orders are in effect.

A luxury item, especially one with a range of low-cost substitutes like Peloton, is a bad fit for a down economy. Americans have already shifted their shopping attention away from discretionary items and toward essentials like food, medicine, and cleaning supplies, and penny-pinching is only likely to increase as the effects of the economic shock spread through the country.

While shutdown protocols may still incentivize Peloton purchases for now, the pool of potential buyers is much smaller now that the economy is shrinking.

The fundamentals are still bad

From a sales perspective, Peloton looks like an overwhelming success. Revenue through the first half of its current fiscal year jumped 85% to $694 million as it benefited from the attention on its IPO last September and a strong holiday season. However, the company is bleeding cash. It spent about a third of that revenue on sales and marketing, a sign of high acquisition costs, and it had an operating loss of $112 million in the first half of the year. Though Peloton gets plenty of word-of-mouth marketing, its sales growth is being driven by spending on media, its showrooms, and other brand awareness initiatives. During a recession, customer acquisition costs will almost certainly increase as potential customers will need more convincing to take the plunge and buy a Peloton, which will further weigh on its bottom line.

Furthermore, though Peloton's top-line growth is impressive, this is not a tech product with a limitless addressable market. Even in good times, Peloton would reach a natural limit in buyers for high-exercise equipment, but that cap is significantly lower in a poor economy than during an 11-year expansion. Peloton's goal is to monetize new customers with a fitness subscription, but that revenue stream will slow if customers balk at spending thousands of dollars on an exercise bike or treadmill. Analysts were already expecting losses through 2021.

At a market cap of $9 billion, Peloton is worth more than Planet Fitness, a solidly profitable chain of nearly 2,000 discount gyms, has ever been. In other words, high expectations are already baked into the stock. With the tailwinds from the lockdowns likely fading and double-digit unemployment beginning to sink into the economy, Peloton shares look set to go downhill after the recent climb.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.