The market is holding steady in 2024 following a heady 2023. That may be thanks to investor enthusiasm at the prospect of interest rates falling year and many companies reporting positive business trends. In the meantime, you still have the opportunity to find bargain stocks before they take off.
Peloton Interactive (PTON 4.29%) is down 96% from its highs, but at least one Wall Street analyst expects it to gain 226% in 2024, according to CNN Business. The fitness equipment maker has had a rough few years, and the stock trades at the dirt-cheap valuation of less than 1 times trailing-12-month sales. Is now the time to buy?
A fitness revolution that didn't happen
Peloton's sales soared early in the pandemic, but it got too big too quickly, and it's now picking up the pieces. There were a series of missteps, mostly related to overestimating demand and making heavy investments that turned into losses. Revenue continues to decline after peaking in 2021.
PTON Revenue (Quarterly) data by YCharts
Peloton got a new CEO to stop the train wreck, and its net loss has been improving. He implemented broad changes across the company, including a new C-suite, job cuts, asset sales, and overall business restructuring.
Finding a new way forward
In light of its challenges, Peloton has had to rethink what it is as a business. There are two main changes it has made to its model since Barry McCarthy came on board two years ago to steer the ship. One is embracing a rental model, which accounted for 33% of bike orders in the 2024 fiscal first quarter (ended Sept. 30). The other is the monetization of its video app outside of the Peloton device ecosystem.
This latter focus could potentially drive high revenue growth for years, but Peloton is still tinkering with how to get it right. It relaunched in May and had more than 1 million signups for the free app, but it hasn't been able to convert them to paying members as quickly as it expected.
Peloton has been shifting its marketing spending to see if it can attract more interest in the paid tier. Fitness streaming is crowded, and although Peloton has made a name for itself and stands out, there has to be enough in its premium tier to entice people to pay.
Another way Peloton is trying to grow its brand and revenue is through partnerships. It announced an agreement with Lululemon Athletica in September and another one with the National Basketball Association and Women's National Basketball Association in October. It's launching a fitness hub on TikTok, its first foray into creating content for channels not on the Peloton platform. This is meant to reach a larger audience and bring them into the Peloton ecosystem.
Peloton is also looking to grow its relationships with universities and sports teams. It started a pilot program at the University of Michigan to engage faculty and students as well as a collaboration with the Liverpool Football Club to reach its fans and members.
Grasping at straws?
The theme among most of these activities is trying to reach a large market of members, from mass consumers with the free app to upscale consumers with its nearly $3,000 fitness equipment. It's partnering with a premium apparel company, but also marketing to college students at a public university.
Some or all of this may come to fruition, and Peloton may pinpoint its strategy on whatever's working best. In the near term, management said it expects to return to revenue growth in the second half of fiscal 2024. If that does happen, the cost-efficiency plans will help it turn more dollars into profits, and Peloton stock is likely to do well this year. But it looks very risky right now.
I would stay on the sidelines while this plays out even on the chance of missing a 200% price increase. If all goes according to plan, there will plenty more to see from Peloton stock when it's in a more stable place.
