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Peloton Q4 Earnings Preview: Did Reopening Hurt Sales?

By Parkev Tatevosian, CFA – Updated Sep 1, 2021 at 12:46PM

Key Points

  • Analysts on Wall Street expect Peloton to report revenue growth of 51.8% in fiscal Q4.
  • Analysts are hoping management will provide updates on recalled products.
  • Peloton stock is currently trading at a forward price-to-sales ratio of 6.

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Sales for its products surged during the pandemic. Investors will want to know if that trend reversed as economies reopened.

Interactive exercise equipment maker Peloton (PTON 7.05%) is set to report fiscal fourth-quarter earnings on Thursday, Aug. 26. In 2020, the company was a prime beneficiary of economic lockdowns as fitness centers were forced to temporarily close their doors at various points and people looked for other exercising options.

As economies are reopening and consumers have more options on where to exercise, there is concern it could negatively affect Peloton's sales. Still, the reopening of economies does not mean the risk of contracting COVID-19 has gone away. The rise of the delta variant is keeping that risk around. It could also be keeping some people from returning to gyms. 

A woman on an exercise bike.

Image source: Getty Images.

Getting back on track 

Reopening trends will certainly be top of mind for shareholders looking at the company's Q4 report. However, it's not the only issue of importance. In its fiscal third-quarter report, Peloton management said it would begin making products at its newly acquired facilities by the end of Q4. Materials supply shipping issues have been a headwind for Peloton as it grappled with not producing enough products to meet demand and getting its products where they needed to be. Peloton bought manufacturing company Precor, in part, to help address these problems. 

Peloton's primary market is the U.S., and Precor's facilities are in North Carolina. If it can start ramping output at those facilities, it could alleviate the elevated costs the company is currently dealing with to get its products to the U.S. from its overseas suppliers. The new in-country facilities may also lower production costs, which management can use to either increase profits or lower prices it charges consumers.

Customer demand for Peloton products was on fire even before the pandemic. The company doubled its annual revenue in 2018 and 2019 before it doubled again in 2020 during the pandemic. Peloton had annual sales of $219 million in 2017; that figure reached $1.8 billion in 2020. For that reason, it's not a given that Peloton's sales growth will decelerate as economies reopen

Those interested in Peloton will also want to hear management discuss progress on adjustments being made to the Tread and Tread+ products. The company had to recall the treadmills shortly after it started selling them due to injury incidents involving young children.

What this could mean for investors

Analysts on Wall Street expect Peloton to report Q4 revenue of $921 million and a loss per share of $0.44. If it meets estimates, the revenue would be 51.8% higher than the same quarter last year. It will also be the slowest quarterly growth, going back at least seven quarters. It's understandable considering the figure's compared to fiscal Q4 last year, where Peloton grew revenue by 174%.

The stock is trading at a forward price-to-sales ratio of 6, after falling from a peak of around 12 earlier in the year. The pessimism surrounding reopening trends and the misfortune with recalls appear to already be priced into the stock as it is trading down almost 37% from highs set near the end of 2020. Investors interested in buying Peloton stock and deciding if they should buy before or after earnings are released should make the purchase before. However, splitting your purchase in two and buying half your allocation before and half after earnings are released might be a less risky way to acquire shares in this case.

Parkev Tatevosian owns shares of Peloton Interactive. The Motley Fool owns shares of and recommends Peloton Interactive. The Motley Fool has a disclosure policy.

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