Peloton Interactive's (NASDAQ:PTON) stock price soared last year as the pandemic sparked brisk sales of its high-end exercise bikes, which locked users in with monthly subscriptions to its streaming classes.

Peloton went public in September 2019 at $29 per share, and initially dropped below its IPO price as analysts questioned its pricing power, competitive moat, and valuation. But as the pandemic spread and gyms closed down, sales of Peloton's bikes accelerated and caused investors to take a second look.

Peloton's share prices surged more than 430% in 2020 and ended the year north of $150. But this year, the stock has shed about a quarter of its value as rising bond yields have sparked a rotation from growth to value stocks. Investors have also abandoned pandemic-oriented stocks and focused on reopening plays instead.

Woman riding a Peloton bike in a bedroom

Image source: Peloton.

Faced with these headwinds, it's tempting to take profits in Peloton. But could this company still generate stable post-pandemic gains and millionaire-making returns over the next few years?

Peloton's business of premium workouts

Peloton runs two main businesses. Its connected fitness products segment, which sells its bikes and related products, generated 81% of its revenue in the first six months of fiscal 2021. The remaining 19% came from its subscriptions.

Peloton's bike costs $1,895 on its own. Other bundles, which add headphones, bike weights, a heart rate monitor, shoes, water bottles, and other equipment, cost up to $2,345. Peloton's bikes stream video classes to their built-in touchscreens. Peloton owners pay $39 per month for those classes, while non-Peloton owners can pay $13 a month for studio and outdoor classes.

Peloton will expand the connected fitness segment with treadmills this May. The base "Tread" model will cost $2,495, while additional bundles will cost up to $3,065. 

The numbers favor the bulls (for now)

Investors who are bullish on Peloton will likely argue that it enjoys a first-mover advantage in its niche market and that it can replicate Apple's (NASDAQ:AAPL) core strategies of building a premium brand, nurturing consumers' loyalty, and locking in users with sticky subscriptions. They'll also claim the shift to remote workouts is a secular one instead of a temporary one.

The numbers favor the bulls so far. Peloton's revenue doubled to $1.83 billion in fiscal 2020, which ended last June, and grew another 163% year over year to $1.82 billion in the first six months of fiscal 2021.

It ended the first half of FY 2021 with 1.67 million subscribers, up 134% year over year, and generated adjusted EBITDA of $235.8 million, compared to a loss of $49.4 million a year earlier.

For the full year, Peloton expects its revenue to rise at least 123%, its total subscriptions to increase 109%, and for its adjusted EBITDA to grow more than 155%. Analysts anticipate its revenue and adjusted earnings will increase 125% and 197%, respectively, this year.

But the bears see a brutal slowdown ahead

Peloton didn't offer any guidance for fiscal 2022, but analysts expect its revenue and earnings to rise 35% and 126%, respectively, as the pandemic passes and it faces tough year-over-year comparisons.

Those growth rates are still impressive, but the bears will argue that Peloton's growth will continue to decelerate as it saturates its core market, gyms reopen, and new competitors arrive.

Its challengers include lululemon athletica (NASDAQ:LULU), which bought the remote workout company Mirror last summer, and Apple, which launched its Fitness+ streaming workout service last December. Mirror's "smart mirrors" stream a wide range of workout classes to people at home, while Apple's service provides access to remote workouts across any of its devices.

Five women sit with their legs crossed on their mats in a yoga class

Image source: Getty Images.

Peloton also faces competition from cheaper exercise bikes and treadmills, as well as other high-end connected bike brands like Echelon.

In the past, plenty of first-mover hardware makers -- such as GoPro (NASDAQ:GPRO) and Fitbit -- overestimated their own brand appeal and underestimated the competition, with disastrous results. Peloton could still fall into the same trap.

Peloton's recent share-price decline reflects that uncertainty, but it still isn't cheap at 160 times forward earnings and six times next year's sales. Alphabet's Google bought Fitbit for just 1.4 times its annual revenue earlier this year, while GoPro trades at just 1.7 times this year's sales.

Peloton isn't doomed to become the next GoPro or Fitbit yet, but it faces some of the same challenges that derailed those two market leaders.

Will Peloton be a millionaire-maker stock?

Peloton has a lot to prove. If it can maintain its momentum and keep expanding its user base, its stock could head much higher. But if competitors start chipping away at its user base and more people return to gyms, it could suffer the same fate as GoPro or Fitbit.

I think Peloton is still an interesting speculative play, but its high valuation and steep challenges could prevent it from generating millionaire-making returns over the next few years.

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.