Interactive exercise equipment pioneer Peloton (PTON 2.62%) is struggling with the economic reopening. The company experienced a surge in demand for its at-home exercise equipment when economies were in various stages of lockdown. Many gyms were closed, and folks were hesitant to visit those that were open for fear of contracting COVID-19.
Now that billions of doses of an effective vaccine against the virus have been administered, people are more willing to exercise at gyms and other places away from home again. The trend is putting a pause on Peloton's surging revenue growth and causing investors concern. However, the stock price has crashed enough to make Peloton an excellent opportunity for long-term investors. Here are several reasons why.
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1. Enormous revenue growth
Peloton's machines have been so popular during the pandemic that it's easy to forget the company's success before the outbreak. From 2017 to 2019, Peloton increased revenue from $219 million to $915 million. Of course, the pandemic put fuel on the fire, and it doubled revenue in 2020 to $1.8 billion before more than doubling it again in 2021 to $4 billion. In a few short years, Peloton has expanded revenue almost twentyfold.
That growth is fueled by the convenience of exercising at home vs. going to a gym. Depending on your location, you can finish an exercise session on a Peloton machine in less time than it would take to get to your gym.
Still, investors are concerned about slowing revenue growth as economies reopen. Peloton management is guiding investors to look for revenue to reach about $4.6 billion in 2022, which would be its lowest growth rate in any year of the company's history.
2. An audacious goal
However, management remains optimistic and envisions a massive opportunity for connected at-home exercise machines. Peloton's big long-term goal is to reach 100 million subscribers. To put that figure into context, as of its most recent quarter ended Sept. 30, Peloton had 2.49 million connected fitness subscriptions. That was up 87% from a year earlier.
Peloton's plan for reaching this goal includes geographic expansion, product innovation, and more affordable prices. In its most recent quarter, it further implemented a couple of those plans by launching a new treadmill in a new country, Germany.
This follows its action from two quarters ago of lowering the price of its popular stationary bicycle from $1,895 to $1,495. The lower price is already helping to bring in customers who were on the sidelines because of affordability.
3. A favorable price
Peloton's massive stock-price crash has it now trading at a price-to-sales ratio of 2.6. That's about one-tenth of its ratio in late 2020.
Admittedly, management did not do a great job in responding to the outbreak. It was slow to adapt to surging demand, which led to customer complaints of slow and canceled deliveries. Then it over-corrected by adding too much capacity, which led to rising costs amid slowing customer demand.
That said, Peloton is still growing revenue, has a huge opportunity to serve a hundred million exercisers, and is trading at a significant discount. For those reasons, the reward is now worth the risk of buying Peloton stock in 2022.
