The convergence of some hot and undeniable trends, the appeal of a sticky market leader that's crushing the high end of its niche, and the strong likelihood of another blowout earnings report just a week away make Peloton Interactive (PTON 3.45%) my top stock to buy in the month ahead.
Peloton has become the high-end platform of choice for interactive treadmill and stationary bike workouts. The company's growth and engagement levels are impressive -- and the fact that it's often lampooned or used as a punch line by comedians only underscores its status as the rising star of the new fitness-at-home movement. Peloton's stock -- like its gear -- may seem expensive, but the premium is worth it on both fronts.
Step by step
Owning a Peloton isn't for the weak of pocketbook, but the math makes sense for many people once you break it all down. The bikes start at $2,245 with the treadmills fetching at least $4,295. Then there's the $39 monthly membership fee. That adds up to a lot of money, but most high-end gyms charge a lot more than $39 a month per member, and everyone in a household can use the Peloton. The cost of the hardware can also be financed over 39 months. By way of comparison, Flywheel and SoulCycle -- two of the best-known boutique spinning class chains -- charge roughly $600 and $864 a month, respectively, for a couple going in for three sessions a week. Unlimited memberships would run you even more.
Who would pay a few thousand up front for an engaging platform that has all the bells and whistles of an interactive in-gym workout without the crowds, attitudes, or increased risks of exposure to viruses? At the close of its fiscal third quarter, which ended March 31, Peloton had 886,100 connected-fitness subscribers -- up 94% year over year. There are a total of 2.6 individual members on the platform.
These bikes and treadmills get put to work once people make their initial investments, and in the current climate, it should come as no surprise that the company's churn is at a four-year low. Usage was at a record level as March ended, with members averaging 17.7 workouts a month, up from 13.9 workouts a month in March 2019. Suddenly the value proposition of owning such a pricey piece of equipment compared to paying for a 12-session-a-month subscription to a Flywheel or SoulCycle starts to make even more sense.
It's hard to find Peloton owners complaining about the experience. Everything from the in-home installation that is included with the purchase to the live and on-demand sessions that offer leaderboards and video call-outs fosters a sense of community that allows the company to generate a significant network effort. Peloton does a good job with its marketing, but nearly half of all purchases are driven by word-of-mouth as satisfied owners tell their friends and family members how much they like the machines and the experience.
It sweats better
The pandemic has made gyms and fitness centers dicey places to get your reps in, and have you tried wearing a mask while running or pedaling? However, it's not just the initial coronavirus-related boost to Peloton that's worth noting here.
The country is also in the midst of a significant surge in people relocating from cities to suburbs. With companies no longer requiring folks to commute into their big city offices, and with families feeling both the dangers and the claustrophobia of cramped multifamily residential buildings, dense metropolitan areas are losing some of their allure.
Folks may be coming to realize they can get more bang for their buck by living just outside the busy cities, but for urbanites who have access to a fitness center in their apartment building or who live within walking distance of a high-end spin class or gym, moving to a house in the suburbs likely means losing that. Peloton wins on all counts in the suburbanization trend -- those homes offer more space for stationary bikes or treadmills, and increase the incentive to substitute one type of convenience with another.
Peloton reports fresh financials after the close on Sept. 10, and there are reasons for excitement. The company's guidance calls for revenue in the $500 million to $525 million range for its fiscal fourth quarter, which would be 128% growth at the midpoint. It should meet -- and likely beat -- that goal. Peloton has established itself as one of this year's hottest growth stocks, but the workout is just getting started, which is why it's my top stock to buy in September.