Shares of Peloton (NASDAQ:PTON) fell as much as 8.2% in trading Tuesday after a Wall Street analyst jumped ship on the stock. Shares ended the day down 4.9%.
UBS analyst Eric Sheridan lowered his rating on Peloton from sell to neutral, although the price target went up to $124 from $115 per share. Sheridan said he liked the company's prospects long term, but that shares are too rich to buy right now.
Peloton has ballooned to a $44 billion market cap, despite just $2.4 billion in revenue over the past year. That looks expensive and given the competition making its way to the home exercise market, there could be reason to worry about that valuation.
Analyst upgrades and downgrades can affect stock valuations short term, but typically they don't do much long term. What investors will want to focus on is Peloton's performance, and on that front there's a lot to like. The company is not only attracting customers as fast as it can build equipment, customers are using its service more and more, getting value out of a streaming workout offering that continues to grow. Shares may be expensive today, but this is a disruptive company in exercise and I wouldn't bet against this kind of growth stock long term.