What happened

Peloton Interactive (NASDAQ:PTON) stock leapt out of the gate Monday, rising 5.5% before retracing to enjoy a still respectable 3.1% gain in noon EST trading -- and if you own shares of Peloton, you can thank the friendly analysts at Needham & Company for your winnings.

This morning, Needham announced that it is maintaining its buy rating on Peloton stock ahead of earnings this week -- but raising its price target $15 to $125 a share.

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Image source: Getty Images.

So what

Needham is optimistic about Peloton's chances on Thursday, predicting the company will report "234,000 connected fitness adds" (so 1.3 million members total), generating average annual revenue of $2,300 each at 57% gross profit margins -- and less than 1% "churn."

The analyst notes that Peloton's hardware sales (the exercise bikes themselves) generate only 37% profit margins, according to a note covered today on StreetInsider.com. That makes Peloton's bikes relatively less profitable for the company, but the sunk cost of buying a bike probably helps to depress customer churn -- because after you've already bought the bike, you might as well keep paying to keep using it to the fullest. And Needham surmises that, even when the COVID-19 pandemic abates, "PTON's subscribers may remain hesitant to return to public gyms for safety reasons, which lowers churn."

Now what

In Needham's view, the combination of rising customer numbers, less churn eating away at that customer base, and more discretionary money being spent per customer is going to keep Peloton's profits rising in both fiscal year 2021 and fiscal year 2022 as well.

Nor is Needham alone in that view. According to the consensus of analysts polled by S&P Global Market Intelligence, Peloton Interactive stock could turn profitable as early as next year -- and grow its profit as high as $1.02 per share by 2023.

Deciding whether a buck a share in profit -- three years from now -- is enough to justify paying $125 for Peloton shares, on the other hand, is up to you.

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.