Exercise equipment specialist Peloton Interactive (PTON 2.41%) has been a volatile investment in recent years.
Home gyms were popular during the coronavirus lockdowns and quarantines, and Peloton's stock soared from $20 to $167 per share in 2020. The company was worth $49.3 billion at the peak, supported by soaring sales growth.
But that boom didn't last. Today, Peloton's stock price has dropped a hair-raising 97% from the COVID-inspired record. The stock's total market value backed down to $1.7 billion.
But it's not all doom and gloom. Peloton's stock has gained 30% from August's multi-year lows. Is it too late to buy Peloton stock by now, or will the company create investor value with a sustained recovery?
The turnaround effort
Peloton achieved its recent market rebound the honest way -- by posting stronger results than expected in the fourth quarter of fiscal year 2024. Top-line sales rose by a skimpy 0.2% year over year, breaking a streak of revenue shrinkage that started in early 2022. Peloton's net loss per share was also milder than expected, nearly touching the breakeven line for the first time since the spring of 2021.
These improvements sprang from concrete business improvements. Peloton has been cutting costs since the home-gym boom ended, and it accelerated the cost-cutting program this spring. Management also recently refinanced the balance sheet with longer-term debt papers, and a new gear rental service launched in the U.K. last quarter.
So Peloton isn't sitting on its hands. The company is actively working on a turnaround plan, and making significant headway by now.
Peloton's challenges
Nobody said the recovery would be easy, though.
The recent progress was driven by an interim team of leaders. Former Netflix and Spotify CFO Barry McCarthy stepped down from the CEO post in May, but stays connected in an advisory role while Peloton searches for its next CEO.
As suggested by the advisory extension, McCarthy appears to have left the company on good terms -- stepping down to find another adventure rather than being fired. In his farewell note, he said that Peloton should continue its fiscal discipline until profits and free cash flows are persistently positive. High-octane growth can wait until the financial platform is stable.
That may sound easy, but it's not. Will the next leadership team rise to McCarthy's parting challenge? Only time will tell.
Health trends also come and go. Peloton operates in a market with heavy competition and unpredictable long-term outcomes. Gym stocks can grow faster than my waistline around the holidays, but they also drain out and disappear as quickly as my post-workout electrolyte drink.
NASDAQ: PTON
Key Data Points
Is this home gym stock a buy today?
Honestly, I expected to find more red flags than bullish signs when I started this Peloton review. Fancy treadmills and stationary bikes with exclusive instructional content had their day. The glory days are gone and won't be back. Right?
But now I'm not so sure. Peloton was in bad shape for a while, but the damage was superficial enough that a few quarters of layoffs and cost-cutting could get it back on track. Now the company is approaching positive bottom-line earnings, along with modest -- but still real -- revenue growth.
I would absolutely not recommend making a big investment in Peloton today. Turnarounds are always risky and difficult, and only more so in markets relying on fickle consumer tastes.
But I do like the direction Peloton is going, and the company might, in fact, have a long-term future under the right leadership.
So it may not be too late to buy Peloton stock today. In fact, a small investment in this speculative turnaround story could make perfect sense. The stock is still priced for absolute disaster, even after the recent earnings-based jump. Merely surviving for a couple more years might be good enough to inspire some serious shareholder returns. Just check your risk tolerance before jumping in, and be prepared to lose it all if the recovery effort doesn't work out.
