Just because a stock has tripled in the last five months doesn't necessarily make it overvalued. It can also mean the market is just starting to catch on.

Considering the value of any business is the present value of all future cash flows, Peloton Interactive (PTON -2.48%) still looks like a bargain tech stock.

Fantastic product

Peloton has developed an incredible product and user experience. But don't take my word for it -- just look at how the company has more than doubled its Connected Fitness members (those who own a Peloton exercise bike or treadmill and subscribe to the interactive content) every year for the last six years running. That's how a company goes from selling its first bike in 2014 to having 1.1 million Connected Fitness subscribers just six years later.

The company also boasts extremely high Net Promoter Scores (NPS), a measure of how willing users are to recommend a product to their friends. NPS is measured on a scale of -100 to 100, where a score above 0 is considered good, above 50 excellent, and above 70 world class. Peloton used to say its bike had a NPS between 80 and 93 depending on the survey, and its Tread+ had a NPS "approaching 80." At its most recent investor day in September, management revealed Bike users in the U.S. now give it an NPS of 94. These are industry-leading numbers.

But management isn't satisfied. Founder and CEO John Foley's "big hairy audacious goal" -- a term coined by author Jim Collins of Good to Great fame -- is a 100 NPS. That implies essentially every Peloton user would recommend it to a friend. While that may not actually be attainable, it illustrates the company's relentless focus on satisfying its subscribers. That's why retention should remain high and subscriber growth strong for years to come.

A man rides a Peloton bike while a woman walks behind him.

Image source: Peloton Interactive.

Huge opportunity

With only 1.1 million Connected Fitness subscribers, Peloton has an enormous opportunity to grow over time. There are 183 million gym memberships globally, including 62 million in the U.S. as of the end of 2018. Clearly, there's a huge market for people willing to pay monthly for access to fitness.

In addition, the company estimates there were about five million treadmills and three million stationary bikes purchased for home use in the U.S. alone during the year ended March 31, 2019. Peloton can capture a significant chunk of those annual purchases in the years to come.

But these market size estimates are very likely understating the market potential for Peloton. According to the company, four out of five Peloton buyers were not previously in the market for a stationary bike before buying a Peloton bike. That's key, because it means Peloton is significantly expanding its opportunity far beyond the historical market for this kind of exercise equipment.

That's why Peloton can amass tens of millions of Connected Fitness subscribers over time. It's especially true as the company "comes down the cost curve" by lowering hardware prices. For example, it just released the next generation Bike+ and lowered the price of the existing Bike from $2,245 to $1,895. And products are likely to get even cheaper as Peloton rolls out its refurbished bike program.

By lowering the cost of entry into the Peloton ecosystem, the company is significantly expanding its pool of potential customers.

Dominant market leader

Peloton pioneered the interactive home fitness category and has had a big head start before major competition began to arrive. But it remains in a class by itself due to the strong user experience and highly-engaged community. Last quarter, Peloton's Connected Fitness subscribers averaged 24.7 workouts per month, which explains the ultra-low subscriber cancellation rate of well below 1% per month.

It's going to be very hard for any new competitor to offer a comparable user experience. And the larger Peloton's subscriber base grows, the more it acts as a network effect that attracts even more subscribers at competitors' expense.

Given the large market opportunity and an increasingly profitable business at scale, investors should still consider Peloton stock a buy at current levels.