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Why Peloton Stock Was Up 18% in July

By Jon Quast – Aug 7, 2020 at 8:40AM

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The company is benefiting from the stay-at-home movement, but is Wall Street getting ahead of itself?

What happened

Shares of Peloton Interactive (PTON 13.00%) were up 18.1% in July, according to data provided by S&P Global Market Intelligence. The stock even hit an all-time high during the month before breaking its record again in early August.

Investors and analysts alike love Peloton's potential in the COVID-19 era -- potential that's perfectly illustrated by a partnership announced early in July.

A man uses a Peloton Bike in a bedroom.

Image source: Peloton.

So what

Peloton sells stationary bikes and treadmills, but it also targets more customers in things like yoga and cardio with its subscription app service. On July 1, the company launched its Peloton App as a channel on connected-TV enabler Roku, bringing the service into more homes. Since more people are staying at home these days, the move makes a lot of sense.

Peloton stock also got a boost in July after CFO Jill Woodworth talked about a product pipeline possibly including a cheaper treadmill and a connected-fitness rowing machine. At the Barron's Investing in Tech call in early July, Woodworth mentioned the treadmill category is potentially three times larger than the stationary bike category, and it's why treadmills at different price points are being prioritized by the company.

Back in May, in the earnings call for Peloton's fiscal third quarter, Woodworth said, "starting in the first week of March we saw a spike in demand for our Bike and Tread due to COVID-19." The accelerated sales had continued up until the time of the call. With many gyms still closed or limited around the country, investors expect this sales trend continued for Peloton in July also.

PTON Chart

PTON data by YCharts

Now what

From March lows, Peloton stock is now up over 200%, and I wonder if the investing world isn't getting ahead of itself. Fitness trends are certainly in the company's favor due to the coronavirus, but Wall Street seems to be forgetting the company expects 2020 to yield big net losses as it builds out its showrooms. And it doesn't expect adjusted profitability until 2023. 

Sacrificing profits now to invest in the business is common among growth stocks like Peloton. But given how far off profitability might still be, long-term investors need to set their gaze years down the road and not get too caught up in the next couple of quarters.

Peloton's fiscal fourth-quarter earnings release is scheduled for Sept. 10 after the markets close.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Peloton Interactive and Roku. The Motley Fool has a disclosure policy.

Stocks Mentioned

Peloton Interactive Stock Quote
Peloton Interactive
PTON
$13.30 (13.00%) $1.53
Roku Stock Quote
Roku
ROKU
$60.73 (1.59%) $0.95

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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