It hasn't been pretty for Peloton Interactive (PTON 4.29%) investors over the past year. The company's stock, which skyrocketed during the pandemic, has lost 70% of its value since April 2021, and the near-term outlook looks bleak. Management is going through an overhaul, and it's launching all sorts of ventures to try to get back on track. Can this one-time investor darling still deliver high gains? And can it help you on the way to millionaire status by 2030?
Fitness fad or future favorite?
Peloton was a small, niche company when it went public at the end of 2019. It closed the first day at $25, just about where it's hovering right now. It had an uneventful first few months and might have slowly climbed up, but we'll never know what "would have been." Once the pandemic started, sales shot up, and the stock soared along with it. But anyone should have been able to see that triple-digit sales growth wasn't going to last, and now that we're at that point, investors are scrambling.
Image source: Getty Images.
So in some ways, we're back to square one, and Peloton's stock price is back where it was before the pandemic started. And now the company has the opportunity to set itself up for long-term success.
In the 2022 second fiscal quarter (ended Dec. 31), sales increased 6% year over year to $1.1 billion on top of a 128% increase last year. Monthly workouts per connected fitness subscription decreased from 21.1 last year to 15.5. Profitability is tanking as investments Peloton made in expanding to handle rising demand are no longer in need. Gross margin contracted to 24.7% from 39.9% last year, and net loss was $440 million after posting net incomes of $64 million in the 2021 second quarter.
On the plus side, monthly churn was only 0.79%, and the 12-month retention rate stood at 92%. As expected, people are out more and using their Peloton machines less frequently, but they're holding onto them, integrating them into a new lifestyle routine. That means Peloton is still in the game.
In February, the company made the first of several changes to position itself for future growth. Founder John Foley is transitioning from CEO to executive chair, and Barry McCarthy is coming in from Netflix, where he was CFO, to take on the top role. Along with that announcement, Peloton said it was restructuring to save money, and that moves such as closing up a manufacturing facility and layoffs should result in $800 million in annual run-rate savings. The company is also testing a new subscription strategy that makes its bikes and treadmills more affordable. This is all good news, but it's unclear where any of this will take Peloton.
You, too, can become a millionaire
Investors shouldn't expect Peloton stock in and of itself to make them millionaires over the next eight years, although that's always a possibility depending on how much you invest. Even if investors see the potential here and decide that now is a good time to buy, there's a lot of risk as the company reorganizes and moves forward. At the current price, shares trade at 1.7 times trailing-12-month sales, which is fairly cheap, and one could argue that the stock, at its initial public offering (IPO) price, has bottomed out. Wall Street would agree. Twelve analysts give it a buy recommendation, with an average price target of $42, or a 74% gain. Sixteen give it a hold, and only two give it a sell.
For investors who are risk tolerant, Peloton shares can add growth potential to a portfolio. But to become a millionaire with more security, this strategy should be balanced with a mix of high-conviction and value stocks. And risk-averse investors may want to sit this one out and find a more secure set of stocks to stack the odds of becoming a millionaire in their favor. The more secure route often takes longer, but there's a higher chance of success.
