What happened

Shares of Peloton Interactive (NASDAQ:PTON) climbed 4.5% on Thursday after Goldman Sachs analyst Heath Terry argued that investors' expectations for the home-based fitness company were "far too low." 

So what 

Terry reiterated Goldman's buy rating on Peloton's stock and boosted his price forecast from $84 to $96. His new target price represents potential gains for shareholders of roughly 37%, based on Peloton's closing price of $70.30.

A person is exercising on a Peloton bike while watching a fitness class.

Sales of Peloton's fitness machines are booming. Image source: Peloton.

Terry believes investors are drastically underestimating Peloton's growth potential. He sees the company's massive backlog of orders as not just a short-term bump in demand during the coronavirus pandemic, but rather evidence of a long-term shift in how people exercise.

Now what 

Even if a COVID-19 vaccine is developed, many people will likely continue to work out in the comfort and safety of their own homes -- particularly those who have already started to invest in fitness equipment during the pandemic. This home-based fitness trend is fueling demand for Peloton's exercise bikes and treadmills, and it's likely to continue to do so well into the future. For these reasons, many investors are likely underestimating Peloton's long-term growth prospects, and its stock could certainly ascend toward Goldman's target price in the coming year.

 

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.