Shares of Peloton Interactive (PTON 6.18%) were falling 7.4% in morning trading on Monday after UBS analysts Arpine Kocharyan and Robin Farley lowered the firm's price target on the connected fitness company from $65 per share to $30 while maintaining its sell rating on the stock.
The analysts say that after looking at the adoption levels for Peloton's digital app on the iOS platform, the 70-basis-point decline seen since October suggests its subscription numbers will be softer than the already weak Wall Street consensus. As a result, Peloton is not likely to be profitable in the second half of the year, which may cause investors to flee the stock.
Peloton reported fiscal first-quarter earnings last month that knocked the maker of connected fitness equipment off its stride. Revenue growth is rapidly decelerating, engagement also declined, and management admitted it misjudged demand for its equipment. Chief financial officer Jill Woodworth said, "It is clear that we underestimated the reopening impact on our company and the overall industry."
With so many more opportunities for out-of-home exercise and entertainment now available to consumers, continuing to stay cooped up indoors to run on a treadmill or ride a stationary bike isn't all that enticing.
Peloton is now racing to shore up sales but cutting prices to overcome its reputation as a luxury brand.
Shares of Peloton are off more than 77% from recent highs. It probably needs to get closer to (or less than) the UBS target price before investors consider riding in to buy shares.
Supply chain issues, pricing, competition, and other issues mean the connected fitness guru still has a lot of worries to handle with its business before it can justify trading over 3 times sales. Wait for a further correction before flexing your investing muscles.