Years from now, when stock market historians look back at the pandemic and its impact on certain businesses, perhaps no other company will make for a better case study than Peloton Interactive (PTON 4.29%). Once a Wall Street darling, this innovative fitness enterprise has seriously lost its luster. And the new CEO is trying desperately to turn things around. 

After Peloton's initial public offering (IPO) in September 2019, the stock soared -- momentum that carried through 2020. But it's been a wildly different story since then as the stock plummeted from its heights. Had you invested $1,000 in Peloton when it went public, you'd have about $360 right now. This represents a gut-wrenching 64% loss in roughly three-and-a-half years. The Nasdaq Composite, by comparison, is up 49% during the same time frame.

What happened with Peloton? And should investors consider buying shares today? Let's take a closer look at this consumer discretionary stock. 

Peloton's rise was epic 

From fiscal 2018 through 2021, Peloton's sales increased at a superb compound annual rate of 107%. The business was a clear disruptor in the fitness space, creating beautifully designed exercise products that integrated with its own technology and software. Being able to take on-demand workout classes from different instructors in various disciplines without leaving the house was revolutionary, especially during stay-at-home orders in 2020. 

During the third quarter of fiscal 2021 (ended March of that year), the average connected-fitness subscriber was working out 26 times per month, a peak for the business that was a wonderful sign of heightened user engagement. And it was normal for Peloton to be doubling its subscriber base year after year. 

At its IPO, the belief was that Peloton had a massive total addressable market of 67 million households across the world. And at the company's 2020 Investor Day, management showcased its ridiculous optimism for the brand, setting a goal of reaching 100 million subscribers one day, versus the 3 million it has today. Peloton also announced its launch in Australia in July 2021, giving the brand a foray into the Asia-Pacific region. Things couldn't have been better.  

At its all-time high in January 2021, Peloton's stock was up a whopping 550% from its IPO price. And the market capitalization approached $50 billion at that time. It looked like the company could do no wrong. But it was all downhill from there. 

But so was Peloton's fall 

The previous management team, led by co-founder and then-CEO John Foley, extrapolated the favorable market conditions that the pandemic had created, positioning the business for heightened demand that they thought would last indefinitely. Peloton purchased Precor for $420 million to gain access to commercial customers and to add much-needed manufacturing capacity in the U.S. And it announced the development of Peloton Output Park in Ohio for $400 million. These weren't needed. 

There were some other issues that also hurt Peloton. Insanely long and changing delivery times during times of peak demand frustrated many prospective customers. Another problem was the recalls of both the Tread and Tread+ due to safety reasons in 2021. The Tread+ is still not available for sale. 

But the economic reopening following the depths of the pandemic was the biggest headwind. People started going back to brick-and-mortar gyms again as consumer behavior normalized. In fiscal 2022 (ended June 30, 2022), sales declined 10.9%. And in the most recent quarter (ended Dec. 31), sales dropped 30.1%. 

Barry McCarthy, the current CEO who was hired in February 2022, is implementing a huge turnaround strategy. Key to his approach is to lower costs, mainly by outsourcing manufacturing and distribution in anticipation of lower demand. The business posted a net loss of $335 million in the last three months of 2022, showing a sequential improvement.

Partnerships with Amazon and Dick's Sporting Goods are meant to drive greater hardware sales, albeit still at a negative gross margin, in order to then benefit from higher subscription revenue. Subscriptions carry an excellent gross margin (67.6% last quarter), so it makes sense why this is such a vital area to focus on to get Peloton on a sustainable path. 

The reality is that the monster customer demand Peloton experienced prior to fiscal 2022 just isn't there anymore. And now, investors must also question if positive profits and free cash flow will ever be achieved. As a result, it's probably best to pass on the stock right now until concrete improvements in these areas are made.