While the Nasdaq Composite Index had a remarkable 2023, rising 43% last year, there were many stocks that completely missed out on the broad market rally.
Take Peloton Interactive (PTON 4.29%), the troubled connected-fitness company that saw its share price decline 23% last year. And down 5% year to date, shares continue to underperform. Investors looking for a bargain-basement deal might be eyeing Peloton as a potential opportunity
Should you buy this consumer discretionary stock hand over fist with $1,000 in 2024? Here's what investors need to know.
Peloton has been on a wild ride
To say that Peloton's journey in the past few years has been a volatile one is an understatement. Prior to the pandemic and during the initial months of the health crisis, Peloton enjoyed tremendous success. Between 2017 and 2020, its connected fitness subscriber count increased from 108,000 to 1.1 million, while revenue climbed from $219 million to $1.8 billion. After pricing its IPO at $29 per share in Sept. 2019, the stock skyrocketed to an all-time high of over $167 by Jan. 2021.
But the company overextended itself. Management expected pandemic-related tailwinds to continue indefinitely, but Peloton ran into the same problems many fast-growing companies experienced coming out of the pandemic: waning demand, falling sales, and rising losses. Barry McCarthy took over as CEO in early 2022 to right the ship.
McCarthy's focus from the beginning was to improve the company's financial position. He deserves some credit for making progress on this front. In the most recent quarter (the fiscal 2024 first quarter, ended Sept. 30), the company posted a net loss of $159 million, a huge improvement from the $409 million loss reported in the year-ago period.
However, executives continue to struggle to boost demand for Peloton's products and services. Revenue was down 3% year over year and remains well below pandemic highs. The number of connected fitness subscribers and paid app members is dropping too.
Management hopes that recent partnerships, like the ones with Lululemon Athletica and TikTok, can drive new demand and move the needle financially, but these efforts will take time.
Looking ahead, management expects revenue to fall 2% in the current fiscal year. The uncertain economy deserves some blame here.
Peloton remains a high-risk investment
Shares are 97% below their all-time high, and they trade at a dirt cheap price-to-sales ratio of just 0.7. That's about as low a valuation as the stock has ever seen, but before you rush to buy shares, understand that Peloton remains a speculative investment.
Owning a business that continues to report declining revenue and steep losses adds financial risk to a portfolio. McCarthy has proved that he can reduce losses, but it's anyone's guess when Peloton will become consistently profitable.
Peloton's wild ride in the past few years demonstrates just how difficult it is to find lasting success in the fitness industry. There is a ridiculous amount of competition from other equipment manufacturers, fitness content companies and services, and traditional brick-and-mortar gyms. This reality makes it hard for Peloton to consistently stand out.
It's also worrying to see the company and the leadership team continue to struggle to find a true identity for what the business is. Changing the strategy to focus more on software than hardware -- while also constantly tweaking the digital app strategy and announcing various partnerships to drum up consumer interest -- tells me that management is still uncertain of what does and doesn't work.
Peloton stock is dirt-cheap for good reason, and investors should avoid it until management can bring growth and profitability back to the business.
