Peloton Interactive's (NASDAQ:PTON) popular connected-fitness products have been a huge hit with exercise buffs who value the convenience of not having to leave their homes to work out. 

Investors have had a lot to cheer about as well: Since the company's IPO in September 2019, which priced at $29, Peloton's stock has skyrocketed 400%, based on yesterday's close, in a little over 16 months!

People using a Peloton Bike+ at home

Image source: Peloton.

If you were bold enough to invest $5,000 in Peloton's IPO, your investment would be worth $25,000 today. This spectacular gain highlights just how lucrative stay-at-home stocks have been amid the coronavirus pandemic.

The perfect tailwind

It comes as no surprise that shelter-in-place orders enacted in the spring of last year provided Peloton with the ideal opportunity to shine. Gyms were closed, and people favored safety and cleanliness above all else, which led to a heightened focus on home workout equipment.

In the third quarter of fiscal 2020 (ended March 31), Peloton recorded revenue of $525 million, a 66% increase from the prior-year period. While this sort of fast growth is already superb, in each of the following three quarters, sales soared more than 100% (2021's first quarter registered a 232% gain).

Peloton now has 1.67 million connected fitness subscribers (those who purchased a piece of equipment and pay the $39 monthly fee) who work out an average of 21 times a month. The business keeps releasing outstanding results every quarter, and investors are loving it -- Peloton's market capitalization swelled by roughly $36 billion in calendar 2020.

Of course, the big question mark going forward is whether or not this remarkable success can continue in a post-pandemic world.

Chalkboard drawing of upward rocket and the word IPO

Image source: Getty Images.

Recent developments

Demand for Peloton's bikes and treadmills still remains strong despite gyms being open for some time and the start of vaccinations nationwide. But even the company wasn't prepared for the tremendous enthusiasm that it's currently facing. New orders for the Bike and Bike+ can take up to 10 weeks to arrive, and there have been instances where orders are canceled hours before delivery, only to be rescheduled for months later.

Many companies would love to have this problem. Peloton is taking steps to address its supply chain woes and return to normal order-to-delivery times.

"To address this issue, we will continue to invest heavily in systems, teams, and manufacturing capabilities to ensure we don't disappoint our customers going forward," CEO John Foley declared on the second-quarter 2021 earnings call. He highlighted a $100 million investment in expedited shipping to get this done.

The recently announced acquisition of Precor (expected to close in the next few months) will further help to expand manufacturing capabilities in the U.S. At the same time, it will open the market for Peloton's products to include commercial channels, such as hotels, apartment buildings, and college campuses.

Takeaway for investors

While I applaud those lucky investors who got in at or near the time of the IPO, it would be nonsensical to expect Peloton's stock to continue this hot streak forever.

I think the stock is overvalued today. The current forward price-to-sales (P/S) ratio of 15.4 is close to the highest it's been since the company became public. Furthermore, it would be hard to argue that there isn't an enormous amount of optimism already priced in. Expectations are sky-high.

Don't get me wrong. This is a fantastic company that sells a fantastic product. However, I'd wait for a pullback before buying shares.

This article represents the opinion of the writer(s), 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.

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.