Peloton (NASDAQ:PTON) debuted on the public markets in September of last year at a price of $27 per share. Since then, the stock has soared 350% to reach its current market capitalization of $32 billion.

The S&P 500 is up only 12% during this same time period, which reveals Wall Street's love affair with the connected fitness company. Peloton continues to benefit from the coronavirus pandemic's effect on people's hesitation to go back to gyms, and it's safe to say the stock is priced for perfection.

If, however, the recent dip in the overall stock market worsens, investors should consider trimming their positions in Peloton.

Man looking at stock charts on computers and holding head

Image source: Getty Images.

Expectations are running wild

Six straight years of 100% revenue growth will drive investors' appetites for future gains like nothing else. Peloton's lofty valuation leaves little room for error, and it would be wise for investors to take some profits off the table. The stock market has generously rewarded companies that have flourished during an otherwise tumultuous 2020. While much of this is warranted, investors must consider the sustainability of these consumer shifts we are seeing once we get back to a more normalized world.

Will people stop going back to gyms for good? I doubt it, but Peloton's stock price tells a different story. The company is worth more than six times as much as Planet Fitness (NYSE:PLNT), the low-cost fitness club operator that itself experienced tremendous growth in the years leading up to 2020.

Investing is a cerebral game where conviction is constantly changing. The higher a position in your portfolio runs, the more critically you should reassess the price-to-value gap and long-term return potential. Peloton is trading at 135 times next year's forecasted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), an astronomical valuation notwithstanding its impressive growth trajectory.

Consistent outperformance in the stock market comes from buying companies in which public expectations are lower than your own. It's difficult to argue that Peloton offers this sort of opportunity today.

It's nice to have

Peloton's four products (Bike, Bike+, Tread, and Tread+) all sell in the range of $1,895 to $4,295, a hefty price tag by any measure. The order book for its Bike is so strong that the earliest a customer could have one delivered is no sooner than four weeks from the purchase date. This demand is a good sign for Peloton, but it will certainly slow once a coronavirus vaccine is released and life gradually gets back to normal.

Investors should not extrapolate the pandemic-fueled performance of Peloton into future years. Gyms and fitness centers are back open, and the general population will once again be comfortable getting back to their usual workout routines. Investors must accept that Peloton's products are discretionary in nature, and heightened economic uncertainty caused by the upcoming election and a still unknown solution to the virus may very well force exercise junkies to delay big-ticket purchases.

Hit the brakes

It's usually never a bad idea to take profits when a position in your portfolio exceeds your target allocation. Peloton is a fantastic growth story, and one that shows no signs of slowing down. However, expectations for the stock are sky-high, so I urge investors to reevaluate their holdings to ensure that the best risk-reward profile is in place.

This fitness disruptor has been a darling since its IPO. If you were lucky enough to catch a ride on the way up, be smart enough to avoid a possible fall.

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.