Up 439% this year, Peloton (NASDAQ:PTON) has been one of the top stock market winners of 2020. If you were daring enough to invest in the IPO 15 months ago, you'd be sitting on an even bigger gain right now. 

So, what's going on here? The onset of the coronavirus pandemic earlier in the year provided the perfect tailwind for the connected fitness company, as the closure of gyms across the country forced workout enthusiasts to find ways to exercise at home. 

Peloton went from having 712,000 connected fitness subscribers (those who purchased a piece of equipment) as of Dec. 31, 2019 to now having more than 1.3 million. And revenue in the most recent quarter soared 232% year over year to $757.9 million. 

However, Peloton's impressive success does not come without competition. At-home fitness is proving to be a lucrative market, and it's getting more and more crowded. Plus, there are still traditional gyms and fitness studios to worry about.

Woman working out with hand weights while facing a Peloton Bike+.

Image source: Peloton.

While it's clear that Peloton is firing on all cylinders, how much of this consumer demand will remain in a post-pandemic world is uncertain. Investors need to weigh some important considerations as users have unlimited workout options. 

Existing competition

Even as gyms across the country have started opening up, Peloton keeps pedaling along. The company has had to shift manufacturing capabilities around in order to deal with the high demand. "Continued high global demand for our products resulted in an increased backlog of deliveries at the end of the first quarter," CFO Jill Woodworth mentioned on the most recent earnings call. 

Although management believes deliveries of Peloton's Bike should return to a normal schedule by the end of the calendar year, they still expect Bike+ deliveries to experience delays for a "couple more quarters." Visibility of such strong demand heading into 2021 is great news for owners of the stock. 

However, this also poses some negative consequences as well, namely from impatient customers who decide to choose competing products like Nautilus's Bowflex and ICON Health & Fitness's NordicTrack. Both are experiencing soaring sales due to the pandemic.

But Peloton's recent $420 million acquisition of fitness equipment maker Precor will certainly alleviate supply chain issues by expanding manufacturing capacity closer to customers in the U.S., with added facilities in North Carolina and Washington state.

Gyms aren't going extinct, either. In fact, a hybrid workout routine seems reasonable for many people. According to a survey conducted by Beachbody, more than 63% of Americans who exercise regularly say they will likely prefer a mix of working out in a gym as well as at home. 

New developments

Peloton's success has been driven primarily by the company's willingness to continue improving the user experience. Its workout library is bolstered by new partnerships, most recently with Beyoncé. The megastar is the most requested artist by Peloton members, and this new alliance will include themed workouts with her music. 

The more subscribers that Peloton adds, the more revenue it brings in, the more it can spend on content, which then ultimately attracts more members. This is the classic flywheel effect, and Peloton's relentless focus on content should help maintain its lead against newer competition from Lululemon Athletica's Mirror and Apple's Fitness+ offering. 

Mirror's advantage over Peloton is that it takes up less space, which means consumers don't need to dedicate an entire room for working out. Even so, it'll be quite difficult to build a cult following around the product like Peloton has. 

On the other hand, Apple Fitness+ is just a cheaper version of Peloton's digital-only offering. The caveat is that you must own an Apple Watch, which I doubt many people will buy just to get access to Fitness+. I think Peloton is protected here simply because its bread and butter are those connected fitness subscribers who are stickier consumers since they made the initial four-figure investment for a piece of equipment.

Additionally, the Precor purchase, which is expected to close early next year, thrusts Peloton into the commercial space. Precor provides equipment for gyms, hotels, college campuses, and other corporate settings, which gives Peloton a wider addressable market that its peers can't match.

What should investors do?

Peloton's stock has had a rapid climb in a short amount of time, as its market capitalization is currently $47 billion. Investors also enthusiastically welcomed the news of the Precor purchase -- the stock popped 14% after the announcement on December 21st.

Priced for perfection, it looks expensive no matter what metric you use. Despite strong demand for its products even with a slow return to normalcy and growing competition from old and new foes alike, investors should take some profits off the table.

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.