Seemingly on top of the world during the depths of the pandemic, innovative fitness equipment manufacturer Peloton Interactive (PTON 4.74%) has been in a massive downward spiral ever since. The company's once insanely popular exercise bikes and treadmills were the talk of 2020 and most of 2021, but this excitement has disappeared awfully fast. 

What's going on with this consumer discretionary stock? In my opinion, Peloton is facing one issue that trumps all of its other problems. Let's take a closer look. 

Pedaling in the wrong direction 

In its most recent quarter (its fiscal 2023 first quarter, ended Sept. 1), Peloton posted revenue of $616.5 million, which was down 23% year over year. This three-month period marked the third straight quarter that sales declined (all greater than 20%) from the prior-year period. Compare this to during the coronavirus pandemic, when Peloton was regularly registering annual sales gains of over 100%.  

Demand for Peloton's high-priced equipment -- a lineup that includes the flagship Bike, Bike+, Tread, Guide (for strength training), and just-released Row (rowing machine) -- has dramatically slowed down. Peloton was only able to add 8,000 connected fitness subscribers (those who pay for a piece of equipment and pay the $44 monthly membership fee) in the latest quarter. In the fiscal 2022 first quarter, the company added 161,000. Peloton expects to add 30,000 in the current quarter, which would mean 3 million total.

What's also alarming is that Peloton is selling its equipment at a loss right now, as the negative 27.2% gross margin for the connected fitness segment clearly shows. A pileup of inventory late last year into the start of 2022 forced the business to pause the production of new equipment, so this is management's attempt to get rid of product. 

To be fair, it would have been a major mistake to assume the monster growth Peloton was able to post throughout the pandemic could last forever. Any rational investor would've known this, as the reopening of gyms played a part in Peloton's slowdown. But the previous leadership team, led by founder and then-CEO John Foley, invested heavily into boosting the company's manufacturing capabilities, buying Precor in December 2020 and announcing a $400 million facility in Ohio that was sold before it was completed. 

But the bloated cost structure, one that current CEO Barry McCarthy has spent his entire tenure (since February 2022) to get under control, would be less of a concern if the company were at least growing its customer base at a healthy clip. But this just hasn't been the case recently.  

Now, current and prospective shareholders have to seriously consider whether Peloton will end up being just another fitness fad, like the Ab Roller or the Shake Weight. Time will tell, I suppose. 

With Peloton's shares down 94% since hitting an all-time high price of $167.42 in January 2021, the stock currently trades at a price-to-sales multiple of just over 0.8. That's about the cheapest shares have been since the company went public in September 2019 and far below the stock's historical average P/S ratio of 6.6. It's safe to say the market has completely soured on this once high-flying Wall Street darling. 

Unless demand trends improve, Peloton's long-term viability as a successful stand-alone company is in question. Making matters worse is the current macroeconomic situation, which will only weaken more as the Federal Reserve continues raising interest rates. Therefore, despite the stock selling for what appears to be an incredibly attractive valuation today, I think it's best for investors to stay away from this business for now until concrete improvements are evident.