Since the start of 2021, Peloton (PTON -4.05%) has been pedaling backward. The connected fitness company's stock is down almost 40% year to date with many shareholders likely questioning everything that made them love the business in the first place. 

But what's really behind that slide? A whole host of issues that potential investors need to consider.

A person jogs on a Peloton Tread

Image source: Peloton.

A series of unfortunate events 

When the COVID-19 pandemic struck, this already thriving business experienced a serious surge in demand as gyms closed and group sports went on hiatus. People who wanted to work out needed to find ways to do that at home, and many of them turned to Peloton's fitness equipment. On the back of this booming demand, the stock rose an incredible 434% in 2020, a period when triple-digit quarterly revenue and subscriber growth was not uncommon for the company.

However, Peloton's popularity led to demand outstripping production capacity with long delivery delays (and dissatisfied customers) starting last fall. Delivery times have since returned back to pre-pandemic levels, but the company is still grappling with other problems, and the business has been trending negatively since early 2021.

Making the biggest headlines this year were safety issues. Peloton initially took a defensive posture in response to warnings the Consumer Product Safety Commission issued regarding its Tread and Tread+ products back in April. But it eventually gave in with a complete recall of both products, and management promised software and hardware updates to address the risks the equipment posed. This was obviously not a good look for Peloton, and questions were raised as to why management hadn't immediately addressed regulators and consumers' safety concerns. However, the Tread was back on the market by late August. 

When the company reported its fiscal 2021 fourth-quarter results on Aug. 26, investors were disappointed. One point that stuck out in the shareholder letter was the announcement of a material weakness in internal controls related to the process Peloton uses to value its inventory. While management asserted it was only a minor problem, it's never good news when a company's financial-reporting processes are called into question. 

And as if investors needed more surprises, management also decided to lower the price of the flagship Peloton Bike by $400 to $1,495. Although the stated goal of this strategy -- to widen Peloton's potential customer base and addressable market -- is laudable, the timing is suspect. Revenue growth saw a major deceleration in the fiscal fourth quarter, and what's more, guidance for the current period calls for $800 million in revenue (another quarter-on-quarter slowdown) and increased member churn of 0.85%, which added to the market's negativity around the stock. The share price has fallen 18% since the fiscal fourth-quarter release. 

Then, there's competition 

All of these developments have occurred as competition in the fitness industry is heating up. Brick-and-mortar gyms are back, as evidenced by Planet Fitness' strong showing in the second quarter. The low-cost gym operator has grown its membership count for seven straight months. Then, there are other high-end fitness equipment brands like Hydrow, Tonal, and Lululemon's Mirror. Even Nautilus provides a full range of competitively priced products for consumers. 

It definitely hasn't been a pedal in the park for Peloton during its short time as a publicly-traded company, but current conditions offer management a valuable chance to adjust course and, hopefully, create a stronger and more resilient business in the long run.

How should investors proceed? 

One thing that remains strikingly clear about Peloton is its stationary bikes are loved by those who own them. Even its $12.99 a month digital-only memberships are praised by people I know who have them. The ability to offer a superior product is a winning characteristic for any business, but it's even more vital during tumultuous periods like the one the company is currently experiencing.

For investors considering opening a position in the stock following its decline, the best course of action is to adopt a wait-and-see approach. Peloton will report financial results for its fiscal 2022 first quarter (which ended Sept. 30) in early November. That's when we're likely to get some more clarity around how the Tread+ is faring in the marketplace, as well as what the demand trends look like for the company's lower-priced Bike.

If those quarterly results are largely positive, it could signal a buying opportunity for a consumer-discretionary stock that has struggled in 2021.