Peloton (PTON -2.24%) has experienced a dramatic rise and fall during the coronavirus pandemic. Sales surged at the onset as gym closures forced people to look for at-home exercising options -- Peloton could hardly keep up with orders. Folks were waiting 10 weeks or more to get their equipment delivered, an eternity in the age of Amazon Prime.
When gyms started reopening en masse in 2021, demand for Peloton products fell. The sudden decrease caught the company off-guard after it planned to boost capacity. Investors have not been forgiving, causing the stock to fall 74% in 2022. After the steep drop, is it finally time to buy Peloton stock?
The pandemic was not as good as initially thought for Peloton
It can be easy to forget that Peloton grew sales rapidly before the pandemic's onset. The company has become so synonymous with a pandemic beneficiary that its success before the outbreak is often neglected. Revenue grew from $219 million to $915 million from 2017 to 2019. Admittedly, the outbreak put fuel on the fire, boosting revenue by as much as 200% in one quarter.
PTON Revenue (Quarterly YOY Growth) data by YCharts.
Unfortunately, it also forced management to overinvest in manufacturing capacity in response to the sudden increase in demand. Those investments are now putting considerable pressure on the business by increasing losses on the bottom line. Peloton's former CEO, John Foley, took responsibility for the decisions and stepped down. New CEO Barry McCarthy has been in the role since February with three primary objectives on the top of his agenda:" 1. stabilizing the cash flow 2. getting the right people in the right roles and 3. growing again. We're making progress on all three priorities."
The first point on the list is perhaps the most crucial, as the company lost $1.7 billion in cash from operations in its most nine months. With only $879 million in cash on hand, it won't take long for that balance to dwindle unless the bleeding can be stopped. Sadly, reversing the overinvestment will take time, but the company has initiated a plan to save it $800 million in annual operating expenses by 2024.
To stem the tide until then, it entered an agreement to borrow $750 million. It also has $1.4 billion of inventory on hand, so a boost in sales could make things monumentally easier on management going forward. Peloton made price changes on April 14 to help demand, which is on pace to boost sales by $40 million monthly. Peloton also increased prices on its monthly subscription, which could increase revenue by $14 million per month. The initiatives look promising, although too early to determine if they will have the desired effects or not.
Peloton's stock is cheaper than ever
PTON PS Ratio data by YCharts.
Even though enough evidence has not emerged that Peloton's strategy changes will work to right the ship, it might be time to start adding Peloton stock to your portfolios. That stock, at a price to sales of 0.825, is cheaper than it's ever been and is offering investors a reward worth taking the risk in buying before more evidence of a turnaround.
