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Why Peloton Interactive Stock Popped Today

By Rich Smith - Updated Mar 19, 2021 at 8:50PM

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Unfazed by news of a product safety investigation, BofA doubles down on Peloton.

What happened

Peloton Interactive (PTON -2.46%) stock took a tumble yesterday, falling nearly 5% on news that a child had suffered a fatal injury related to one of the company's Tread+ treadmills -- and that the U.S. Consumer Product Safety Commission is investigating the incident.  

In a letter to customers, Peloton founder John Foley said, "We design and build all of our products with safety in mind. But in order to help ensure that you and your family members stay safe with Peloton products in your home, we need your help. ... Keep children and pets away from Peloton exercise equipment at all times."

And already today, Peloton stock is recovering on news that Bank of America is doubling down on its endorsement of the stock, which is up 4.9% as of 12:12 p.m. EDT.

Green stock arrow shooting up among the numerals 2021

Image source: Getty Images.

So what

As reports today, BofA took away three key points from an interview that Foley gave to Bloomberg yesterday:

  • Peloton has grown its supply capacity 700% over the past year and is now in position to meet demand for its stationary bikes and treadmills.
  • As supply catches up with demand here in the U.S., the company will be looking to expand internationally.
  • An addressable market of 200 million gym goers, seen in the context of Peloton's 2 million users, means there's theoretically room for Peloton to grow another 100 times in size.

Now what

That last point is key to Peloton investors. As vaccinations roll out and the economy opens back up, it's likely that gyms will see a return of at least some of their former customers. But a market that's 100 times bigger than the portion of it that Peloton currently occupies suggests there's still a lot of room for Peloton to grow -- maybe even enough room for the company to hit the 86% annualized growth rate target that Wall Street has set for it.

That's exactly what Peloton needs to do, if it's going to justify its 190-times-earnings valuation and the $175 price target that BofA has set for it.

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