What happened
Shares of connected fitness-equipment maker Peloton Interactive (PTON 4.29%) took a tumble Thursday and were down 3.8% as of 10:10 a.m. ET today.
In a note out this morning, Citigroup cut its price target on neutral-rated Peloton by 31%, to just $38 per share.
Image source: Getty Images.
So what
Peloton shares suffered a huge decline in value last month after the company reported only 6% sales growth in its fiscal first-quarter 2022 and dramatically lower gross profit margins. It then lowered guidance for revenue and gross margins as well. At the time, Citi responded by cutting its price target on the shares nearly in half, to $55, but even that target began to look optimistic as Peloton stock continued to slump.
Today, Citi is taking Peloton's Nov. 16 decision to issue and sell $1 billion in new shares as a reason to lower its price target even further. As the analyst explains today, it needed to reassess the stock's value in light of all the new Peloton shares floating around.
Now what
But how much more diluted did Peloton stock really become after its latest stock offering? On Nov. 16, the company predicted it would sell 23.9 million new shares of stock to raise the desired $1 billion, or nearly 27.2 million including underwriter overallotment options.
Even such a large stock issuance, though, only increased the number of Peloton shares outstanding (i.e. diluted the stock) by about 8.2%. If Peloton stock was worth $55 before the stock issuance, therefore, then the stock issuance itself would have only lowered the stock's value to perhaps $50.50. The fact that Citigroup is cutting its price target all the way to $38 today suggests it is worried about more than just a few more shares of Peloton stock. Investors selling off the stock today seem to think Citi is right to worry.
