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Why Peloton Stock Jumped on Thursday

By Daniel Sparks – Dec 30, 2021 at 11:42AM

Key Points

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Even a lowered price target represents huge upside for this growth stock.

What happened

Shares of connected fitness specialist Peloton Interactive (PTON 2.58%) jumped on Thursday, rising as much as 7%. By 10:25 a.m. ET, however, the stock had settled to a gain of about 5.3%.

The growth stock's gain likely reflects a combination of factors, including an analyst's outperform rating on the stock and an upbeat day for tech stocks overall today.

A couple using Peloton equipment at home.

Image source: Peloton Interactive.

So what

The stock's gain on Thursday comes even as a firm lowered its 12-month price target on shares. But a closer look at the revised target helps explain why the analyst's move may still be good news for Peloton investors. Baird lowered its 12-month price target from $90 to $70, following the stock's continued beating this year. But since shares have been hit so hard (down more than 75% this year), this revised price target is still more than 90% above where the stock is trading at the time of this writing. This implied massive upside explains why Baird reiterated an outperform rating for the stock along with the move to lower the price target.

With even a significantly lowered price target still translating to significant upside, maybe some investors are starting to think the growth stock's sell-off has gone too far.

A good day for tech stocks in general is likely helping the stock, too. The tech-heavy Nasdaq Composite is up about 0.6% at the time of this writing, and the S&P 500 is up 0.3%.

Now what

Peloton's year-over-year revenue growth has been slowing in recent quarters as the company faces off against tough comparisons from a year ago, when the number of people working out at home was abnormally high. But revenue is still growing. In the company's most recent quarter (its first quarter of fiscal 2022), revenue rose 6% year over year. Also important, management guided for full-year fiscal 2022 revenue to come in between $4.4 billion and $4.8 billion, up from about $4 billion in fiscal 2021 and just $1.8 billion in fiscal 2020.

The true test will be whether or not the company's revenue growth can reaccelerate to some extent over time, as year-over-year comps start to normalize.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns and recommends Peloton Interactive. The Motley Fool has a disclosure policy.

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