What happened
Shares of stationary bike- and treadmill-seller Peloton Interactive (PTON 2.62%) suffered a near-5% sell-off this morning. It's recovered somewhat in the afternoon, but is still down 3% as of 12:35 p.m. EDT.
And you can probably blame UBS for that.
Image source: Getty Images.
So what
In a report out this morning, Swiss megabanker UBS doubled down on its sell rating on Peloton stock.
Peloton, explains UBS in a report covered by TheFly.com today, is the victim of inflated expectations among the analysts who follow it. You see, currently, Peloton has penetrated about 3% of the market for connected fitness subscriptions (which UBS defines as households earning at least $75,000 a year, and exercising at least twice per week). That's twice where Peloton was at at this time in 2020, and more than four times its penetration in 2019 -- but Wall Street is counting on Peloton to more than triple its current penetration again by 2025, and to grow its revenue 42% annually over the next four years.
UBS warns that this is unlikely to happen. Guesstimating that Peloton might hit 7.7% penetration by 2024 perhaps, and then trend toward slower growth, the analyst foresees 38% annualized revenue growth through that year -- somewhat short of Street estimates, and justifying a sell rating and a $74 price target on the stock.
Now what
Granted, even if UBS is right, 38% annualized sales growth would be really impressive. But the question investors need to keep in mind is whether 38% sales growth (or even 42% for that matter) is fast enough to justify paying nearly 160 times earnings for Peloton stock today.
UBS thinks it might not be, and I'm inclined to agree.
