The recent downward spiral in Peloton Interactive's (PTON 1.77%) stock price has been unnerving for some investors. After an impressive climb during the pandemic, the stock has lost a third of its value year to date. While it's normal to see growth stocks experience wild price swings occasionally, investors are probably wondering whether the stock is a buy, sell, or hold following the company's recall of its treadmill products recently. 

On top of the recalls, management issued forward guidance for fiscal 2021 that shows a sharp deceleration in growth. For fiscal fourth quarter 2021, guidance calls for revenue to be $915 million, or a year-over-year increase of 51%. That's way down from the triple-digit levels Peloton reported last year.

However, since Peloton acknowledged the problem and issued a recall of its treadmill products, the stock has rebounded 29% over the last month. The recent jump may signal that the near-term effect of the recalls has already been discounted in the stock price and that investors are looking ahead to fiscal 2022 and beyond.

Two people in workout clothes take turns using a Peloton bike.

Image source: Peloton Interactive.

How Peloton performs over many years is way more important than how fast it grows in fiscal 2021. On that score, there are three reasons that the lower share price might present a good buying opportunity.

1. Peloton is seeing record upgrades to its exercise products

When a stock has fallen on disappointing news, it often pays to take a peek beneath the headline numbers to find clues about the real strength of the company's business. We know Peloton is likely going to experience a deceleration in growth in the next quarter based on guidance. But the investment case for Peloton centers around its long-term potential to capture its immediate addressable market of 15 million households. Peloton ended the last quarter with just 2.08 million connected fitness subscribers, which is the term used for the Bike and Tread products. 

It's got a long way to go, so the most important thing investors want to know is how customers are responding to the idea of purchasing a Peloton bike coming out of the pandemic. During the fiscal third-quarter earnings call, CFO Jill Woodworth offered one interesting detail about consumers' interest in Peloton's exercise products:

"During the past year, we've dedicated more resources to building a powerful digital to connected fitness upgrade path, and we are currently driving the highest monthly upgrade rates we have ever achieved." 

What Woodworth is referring to is a strong trend of digital app members deciding to purchase a Peloton Bike. Peloton offers a digital app subscription with access to yoga, outdoor running, strength classes, and other activities for $12.99 per month. Total subscribers across digital app and connected fitness products stood at over 5 million last quarter. The digital app serves as both a companion to the Bike and Tread, and an acquisition tool for management to attract new buyers. 

Woodworth sees the strong upgrade trend leading to more growth over time. "As our digital membership base grows, we expect our improving upgrade rates to become an increasingly large driver of our connected fitness sales," she said. 

2. Peloton continues to expand its product offering

It's also important to realize that Peloton has a broader product offering than it did during the pandemic, when revenue growth was exploding. This year, Peloton has two models with Bike and the new Bike+. The new version added a rotating screen for off-the-bike strength workouts, in addition to other features, including Apple GymKit compatibility. 

During a recent investor conference hosted by Bank of America, Woodworth pointed out that Peloton drove its growth last year without having to spend as much on marketing. However, the company is planning to ramp its marketing spending back up in the near term. With the larger product portfolio, it's in a stronger marketing position than before the pandemic. 

Peloton has relaunched and added new classes for yoga, barre, and pilates to its workout library over the last year. The company is excited to spread the word about its expanded offering. 

Keep in mind, this is a company that earns very high returns on marketing. For example, over the last two years, Peloton has increased its trailing-12-month marketing expense by 80%, but revenue has grown 303% over that time. This shows that Peloton is very effective with its marketing campaigns in bringing in new customers, and its ability to do this should be even more enhanced with an expanded product portfolio.

3. International growth is underestimated

Peloton's estimated addressable market of 15 million households is just in the four markets it's currently operating in. It doesn't count new geographies it plans to penetrate soon. Peloton will launch in Australia in the near term, and it's targeting one to two new markets per year. 

Management believes that as it launches new products and expands to new geographies, the addressable market will also expand beyond the current estimate. 

Investors will have to tolerate the volatility in the share price, but I believe the stock is still a buy, given the opportunities ahead.