Although the Nasdaq Composite index has taken a breather in the last several days, it's still up 15% in 2024 (as of Aug. 13). And it's not trading that far off its all-time high.
However, not all companies feel the bullish sentiment. In fact, there's one consumer discretionary stock that has been obliterated. Its current share price is a gut-wrenching 98% below its record level from January 2021.
You might believe that buying the dip is a smart move. Here's why you'll regret that decision.
Peloton was a pandemic darling
It's hard to find stocks that have done as poorly as Peloton Interactive (PTON 0.66%). But it wasn't always a downward spiral for the fitness disruptor.
Before and during the COVID-19 pandemic, the business was thriving. Peloton couldn't sell enough of its exercise bikes. The customer base was rapidly expanding. Skyrocketing demand helped drive triple-digit revenue gains.
At one point, the company's market cap approached $50 billion. And the price-to-sales (P/S) multiple around that time was nearly 21. This was thanks to the stock price soaring 550% in the 15 months leading up to its peak in early 2021.
NASDAQ: PTON
Key Data Points
Peloton's ongoing issues
Following the pandemic surge, Peloton started pedaling in the wrong direction. The prior management team incorrectly assumed that the huge demand would continue indefinitely even when things normalized. This turned out not to be the case.
Peloton's sales started to crater as gyms opened back up and consumers felt less inclined to fork over thousands of dollars for home workout equipment. In the three-month period that ended March 31 (Q3 2024), revenue totaled $718 million. This was 43% lower than the same period exactly three years ago.
To drum up interest, management has tried numerous initiatives. Peloton started selling its products via other retailers, like e-commerce giant Amazon and brick-and-mortar chain Dick's Sporting Goods. It also entered into content partnerships with Lululemon and TikTok.
Plus, in an effort to boost high-margin subscription revenue, and lean less on hardware sales, Peloton revamped its digital app. But that has hardly helped. The company's digital app membership count dropped 21% in the latest fiscal quarter.
Unsurprisingly, the financials are in terrible shape. In the past eight fiscal quarters, the business reported a troubling $1.6 billion in cumulative operating losses. To be fair, Peloton is now profitable on an adjusted EBITDA basis, but that's not doing much to assuage investor concerns.
Peloton is a value trap
The current state of affairs couldn't be further from where Peloton was in early 2021. The stock trades at a dirt cheap P/S ratio of 0.4 right now, indicating the market's extreme pessimism as it relates to Peloton's prospects. The average multiple historically is 4.5.
On the one hand, I think I can figure out why some daring investors might want to take a chance on this company. For what it's worth, Peloton has developed a well-known brand in the fitness category, with a vast library of workout content in different modalities. And the exercise equipment is user-friendly and innovative. I'm sure there are die-hard fans of the offerings.
But the probability of Peloton turning things around is low, in my opinion. Consequently, I view the shares as a classic value trap. It's hard to find reasons to be optimistic about the business over the long term. Maybe a potential suitor can strike a deal to acquire Peloton as part of a broader corporate strategy.
Don't get stuck in the trap. Investors should avoid this stock like the plague.
