What happened

Shares of Peloton Interactive (NASDAQ:PTON) gained 12.4% in value last month, according to data provided by S&P Global Market Intelligence. The stock was trading in a flat range for most of the month until a Goldman Sachs analyst raised the price target from $84 to $96, or 15% above the current quote of $83.33. 

The analyst believes investors are still underestimating Peloton's growth and profitability in both the short and long term.

A woman using a Peloton bike in her home.

Image source: Peloton Interactive.

So what

The bullish call came after the stock had more than doubled year to date. The shares are currently up 209% on the year so far. Peloton now has a market capitalization of $24.8 billion, despite generating negative free cash flow and net income on a trailing 12-month basis. But the interactive fitness provider is growing rapidly and seeing significant progress in improving its profit margin.

Eventually, this growth stock will have to rest before going any higher, but the analyst believes Peloton's current momentum justifies a higher stock price based on the sheer momentum in order volume right now. Last quarter, Peloton doubled its production output yet still had a backlog entering the fiscal fourth quarter.  

Now what

Peloton earned its first profit on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis in the fiscal third quarter, and that may be the start of a trend. Peloton expects to report an adjusted EBITDA margin of 11.8% at the midpoint of the guidance range for the fiscal fourth quarter, which is rapid progress for a business that was reporting losses a few quarters ago. 

Peloton is calling for revenue to be between $500 million to $520 million, representing growth of 128% year over year at the midpoint. Connected fitness subscribers are expected to more than double to between 1.04 million to 1.05 million for fiscal 2020 (which ended in July). 

However, Goldman Sachs believes the company will beat those estimates with 1.09 million subscribers. We'll know more when the company reports fiscal fourth-quarter earnings on Sept. 10. 

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.