When looking back at the past six months, it's interesting to see which stocks fared well and which did not. The coronavirus pandemic forced economies all over the world to come to a screeching halt, and with people stuck inside their homes seeking any semblance of normality, companies that were able to satisfy consumers' needs in this new normal came out winners.
Peloton (PTON 2.94%) is one such company, as the tripling of its shares in 2020 year to date clearly illustrates investors' adoration of the fitness disruptor. With health and well-being becoming a priority for many people, Peloton's pandemic-proof stock stands to continue rising.
Isn't it just a bike with a screen attached?
As I like to point out, Peloton, like Apple, sells premium hardware that is differentiated by its own software and accompanying services. The company sells two variations each of its stationary bike (Bike and Bike+) and treadmill (Tread and Tread+). While it may seem like these products are nothing more than traditional fitness equipment with a tablet attached to the front, they are much more than that.
Peloton has created an impressive user experience by focusing relentlessly on what its consumers want most -- more workouts, good music, healthy competition, a sense of community, and most importantly, fun. The company's Bike sports a 94 NPS score with users raving most about the interactive experience. Sales in the most recent quarter (fourth quarter fiscal 2020) skyrocketed 172% year over year, and its Connected Fitness Subscribers grew 113%.
The company has doubled sales in each of the last six fiscal years, so don't think that the recent surge in growth is entirely due to the pandemic. Peloton did, however, take advantage of the demand fueled by shelter-in-place orders earlier this year, and the company keeps thriving as consumers choose to work out at home and eschew going back to gyms.
Just stay home
The virtual workout trend was no doubt accelerated by the COVID-19 pandemic. A survey titled Future of Fitness, conducted by Wakefield Research, found that a whopping nine in 10 Americans who exercise regularly will continue with at-home workouts even after they feel comfortable going back to a gym. This plays directly into Peloton's favor, even more so with the company offering a digital-only membership for $12.99 in addition to its equipment.
In order to bolster the case for Peloton's pandemic-proof status, the company must also cater to the correct demographic. What we're going through is unprecedented in modern times, and it has put pressure on most people to be more frugal with their personal finances. This makes it even more impressive that 46% of Peloton's Bike customers come from U.S. households earning less than $100,000, up from 39% two years ago. What's more, Americans between the ages of 24 and 35 are the company's fastest-growing cohort. Capturing this young demographic is crucial as it gives Peloton the opportunity to develop long-term relationships with its customers.
Because the social and economic environment was so supportive for Peloton, it was able to drive demand while simultaneously pausing the majority of its marketing spend. Consequently, this resulted in record profitability in the fiscal fourth quarter. When the pandemic eventually subsides and we all get on with our normal routines, Peloton will need to pick up its marketing expenditures in order to sustain and grow its already remarkable brand awareness.
Add to your shopping list
Few companies have benefited over the past six months like Peloton has, and it is a business that I like more and more as I keep learning about it. Being able to have an effective workout from the comfort of your own home is something that a larger portion of the population wants, whether we're in a pandemic or not.
It will be interesting to see how long Peloton can keep up this monumental growth, but two things are certain -- this is a very high-quality company, and the stock has proven to be pandemic-proof. As it continues reaching all-time highs, smart investors should add Peloton to their watch lists and buy in when the price is more favorable.