What happened

Shares of fitness company Nautilus (NYSE:NLS) were going up on Wednesday without a clear catalyst. But it's possible the stock is merely mirroring the movements of hot newcomer Peloton Interactive (NASDAQ:PTON). Investors who've watched Peloton's incredible 2020 run (up over 300% year to date) believe the same tailwinds apply to Nautilus, but at a much cheaper valuation.

So what

Prominent research firm Citron Research wasn't the first to compare the valuations of Nautilus and Peloton. But it definitely brought attention to the issue when the report was issued on Sept. 9. Since then, the movements of the two stocks have been extremely similar, although Nautilus' gains have been higher. It happened again today -- Peloton stock was up 5%, while Nautilus stock was up 9%.

NLS Chart

NLS data by YCharts.

Why would these two fitness-company stocks be gaining today? Perhaps it has something to do with talks of a second round of personal economic stimulus payments. It had appeared all bets were off until after the U.S. presidential election, but hopes were renewed today based on comments from politicians, including the president. 

If everyday Americans had extra money, that would allow for big-ticket purchases like Peloton's and Nautilus' fitness hardware. 

A row of wooden blocks topped with upward arrows are stacked sequentially taller.

Image source: Getty Images.

Now what

Peloton and Nautilus have very different valuations. Consider the trailing price-to-sales metric. Peloton trades at 18 times sales compared to less than two times sales for Nautilus. But take care comparing these two businesses too much -- they're very different companies. 

In Peloton's fiscal fourth quarter of 2020 (the most recent quarter), 20% of revenue was recurring. By contrast, Nautilus' revenue is primarily generated through one-time hardware sales. It does offer subscriptions but doesn't break these numbers out, suggesting they're insignificant.

Peloton's subscription revenue is high margin and has strong retention rates, which points to a much more sustainable business model long term. Give Nautilus credit, though -- its sales were up 45% year over year in the first half of 2020. But investors should be cautious to assume these two stocks deserve comparable valuations given their very different operations. 

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.