After two strong years in 2023 and 2024, the market is continuing its positive streak in 2025. Amid a favorable backdrop, companies that previously seemed left for dead are now roaring back to relevance.
There's one soaring consumer discretionary stock that's up a whopping 207% just in the last six months (as of Feb. 19), a gain that would've tripled your capital in half a year. During the same period of the time, the Nasdaq Composite Index climbed just 14%.
Is this a once-in-a-decade buying opportunity right now? Investors should continue reading to learn more about this business.
Slowing down the bleeding
Once an absolute darling on Wall Street, Peloton Interactive (PTON 0.13%) was met with a new reality following the COVID-19 pandemic. One glaring red flag was the company's mounting losses. After reporting a net loss of $189 million in fiscal 2021, Peloton's net loss peaked at $2.8 billion in fiscal 2022.
Things are turning around for the better. In particular, the bottom line is improving. In the three-month period that ended Dec. 31 (Q2 2025), Peloton reported a net loss of $92 million. This was a massive upgrade from the $195 million net loss posted in the year-ago period. It helped that Peloton cut its operating expenses by 25% in the second quarter compared to Q2 2024.
Looking ahead, executives are optimistic. They raised guidance for free cash flow to "at least $200 million" for fiscal 2025, up from $125 million.
Peloton stock's monumental rise proves that small fundamental improvements, especially when it comes to minimizing losses, can drastically shift market sentiment for the better. However, the business is far from thriving at this point.
NASDAQ: PTON
Key Data Points
Boosting demand is a challenge
It's definitely commendable what Peloton has done to shrink its net losses. Getting close to a position of financial strength and further away from financial collapse is the right priority for the leadership team. There is a limit to how much a business can reduce its costs, though.
This brings me to the real issue facing Peloton: weak demand. It was unreasonable for investors to expect the tremendous growth registered during the depths of the pandemic to continue indefinitely. However, I don't believe anyone predicted just how much demand would fall off a cliff.
As of Dec. 31, Peloton had under 2.9 million connected-fitness (CF) subscribers. This figure was down 4% year over year, and it has shown no signs of increasing in the past three years.
Despite various retail partnerships with the likes of Amazon, Dick's Sporting Goods, and Costco, Peloton is having trouble growing its CF user base. It seems not many people want to spend four-figure sums on exercise equipment in this economic environment. Hardware revenue dropped 21% in Q2.
Getting back to growth is not a top focus for management right now. "[W]e have a steep hill to climb to reach sustained, profitable growth," the latest shareholder letter reads.
Investors might point to Peloton's subscription revenue, which was down just 1% and represented 62% of the overall business. Generating more sales from this high-margin source can be beneficial to the company's financial situation. But the base of digital app members keeps shrinking. And monthly churn is still alarmingly high.
Cheap, but risky
Even after the stock's incredible run-up since August last year, it remains in the bargain bin. Shares trade at a price-to-sales (P/S) ratio of 1.4. This is because they are 94% off their peak from January 2021. Since its initial public offering in September 2019, the stock's average P/S multiple has been 4.2.
The valuation is historically cheap. However, I believe investors should stay away from this risky stock. Unless Peloton can prove that it's able to grow CF subscribers and revenue at a healthy clip on a consistent basis, as well as improve profitability, owning this business is totally out of the question.
