What happened
Peloton Interactive (PTON +1.89%) shares beat the market on Friday as the stock gained 11% by 1 p.m. ET compared to a 1.2% increase in the S&P 500. That spike only erased a small portion of losses for the home-fitness specialist. The stock is down over 70% so far in 2022 even after today's spike.
Friday's rally reflected slightly more optimism on the part of investors that this beaten-down stock might recover. However, the latest operating momentum trends suggest things could get worse for Peloton.
So what
Shares have been reeling in recent months as Peloton struggled to boost sales of its exercise platforms or membership subscriptions to its services. Product revenue slumped by 55% in the fourth-quarter period that ended in July, the company said in late August. Losses ballooned as well, although management sought to put a more positive spin on results, in part by pointing out that quarterly cash burn has improved to $412 million from approximately $650 million.
Still, shares had fallen sharply through most of the year, and Peloton's stock-price valuation dropped to below one times sales in early September. That slump laid the groundwork for a potential spike during a broader market rally like the one investors saw on Friday.
Now what
CEO Barry McCarthy and his team are hoping to reinvigorate sales growth even as they slash investments in many areas of the business. That's a tall enough order in most selling environments, but it is even harder today when many consumers are choosing to avoid spending in areas they had prioritized in other phases of the pandemic.
Peloton appears to be moving toward positive cash flow, and that's undeniably good news for the business. However, the stock is an extremely risky investment option today. Sales trends aren't stabilized, and losses are significant as we head into the holiday shopping sales period. Most investors will want to look for better-performing growth stocks to add to their portfolios, notwithstanding Peloton's recent stock price boost.
