Peloton (PTON 4.29%) has taken shareholders on a wild roller coaster ride in the past few years. The stock was once a favorite on Wall Street, thanks to skyrocketing sales. But times have changed.

Shares continue to take a hit, as they dropped 23% in 2023 and are down 7% so far this year (as of Jan. 18). As a result, investors looking for a value play might have their sights on Peloton.

If you're looking to buy this beaten-down consumer discretionary stock right now, take the time to know these four things first.

Subscriptions over hardware

Peloton might be known for its exercise equipment, especially the stationary bikes. But this segment has become a tiny part of the overall business. In the most recent quarter (first-quarter 2024 ended Sept. 30, 2023), the company generated only 30% of its total sales from connected-fitness products.

The balance came from subscription services, which is the money Peloton makes from its fitness apps. Driving greater recurring revenue has been the focus of CEO Barry McCarthy since he took the helm two years ago.

From a growth perspective, this strategy has yet to bear fruit. Subscription revenue was up just 1% in Q1 on a year-over-year basis, and it actually declined compared to the previous quarter. Perhaps more alarming is the fact that paid app members continue declining. That's obviously not a good sign.

Improving financials

During fiscal 2021, the period that included the pandemic surge, Peloton was close to net income breakeven. However, the financial picture deteriorated the following fiscal year, as revenue fell double digits, while the expense structure remained bloated.

To drive efficiencies, management has embarked on a cost-cutting strategy, which means laying off a significant chunk of the workforce. But so far, the signs are encouraging.

Peloton's net loss of $159.3 million last quarter decreased meaningfully from the $408.5 million net loss posted in the year-ago period. And in the Q1 2024 shareholder letter, McCarthy said his team expects Peloton to produce "substantial positive free cash flow in the second half of this fiscal year."

Investors will need to pay attention to upcoming quarterly updates to see if this ends up happening.

Partnerships are key

Getting Peloton back to registering healthy growth has been another priority for the CEO. In order to do this, he's had to open up Peloton's distribution strategies.

In the past year and a half, the business has entered into multiple partnerships to boost revenue gains. The most notable of these agreements was to start selling Peloton products on the Amazon marketplace, which shifted the sales strategy from direct-to-consumer to now relying on the e-commerce juggernaut. Additionally, Peloton started selling its equipment at Dick's Sporting Goods locations.

More recently, the company partnered with Lululemon to provide the apparel maker with fitness content for its own members. And in the hopes of reaching a massive audience, Peloton will create content that's available on TikTok.

Cheap, but risky

Because Peloton's business continues to struggle to find solid footing, the stock has seriously disappointed investors. It's currently 97% below its record high from January 2021.

This means that it's ridiculously cheap. Shares trade at a price-to-sales ratio of just 0.7, which is close to its lowest level ever. This beaten-down valuation might prompt some investors to add this business to their portfolios.

But as famous investor Warren Buffett said, "Turnarounds seldom turn." This might be the right way to view Peloton, making the stock an extremely risky bet.