It may be time for investors to have a fresh look at Peloton Interactive (PTON 2.20%) -- the connected-fitness company known for its studio-quality instructors that are streamed from its stationary bikes, treadmills, and rowing machines. The mere suggestion of reconsidering it may give some investors the shakes -- Peloton was once a market darling but has now plunged 97% from its all-time high.
Peloton's stock crashed because the business started burning cash at an alarming rate. The company's operations burned $2.7 billion cumulatively from the start of its fiscal 2021 through the end of its fiscal 2024 -- almost $700 million annually. During this time, there were layoffs, multiple CEOs, shrinking revenue, and co-founders leaving the company.
Image source: Peloton Interactive.
However, Peloton has quietly stabilized and flipped the script. In the company's fiscal 2025, it generated free cash flow of $324 million. And for the fiscal first quarter of 2026 (which ended in September), it had free cash flow of $67 million. That's a Q1 margin of 12%, which is nothing to sneeze at.
The end result is that Peloton stock is actually cheap. It trades at a paltry 6 times its trailing free cash flow, as the chart below shows. You'll be hard-pressed to find another business with a valuation this cheap.
PTON Price to Free Cash Flow data by YCharts
Peloton is profitable again, which is good news. And this bargain valuation is a good reason to revisit this investment.
What Peloton needs to win for shareholders
In most cases, businesses that fail to grow also fail to create shareholder value. Therefore, I believe Peloton would need to return to some growth for the stock to provide solid returns for investors.
NASDAQ: PTON
Key Data Points
Peloton's revenue has consistently declined year over year for about four years now. The company does expect revenue to go up by less than 1% in the upcoming fiscal second quarter, an improvement from the 6% drop in Q1. But the company is losing subscribers and is making up the difference with higher prices. That's not a sustainable path for growth.
A more promising path is Peloton's expansion with small-format stores. Rather than open large, stand-alone stores as it did in the past, the company has been expanding with small, dedicated sections within larger stores. This could provide a more efficient way to get products in front of consumers.
One thing's for sure: Peloton's growth trajectory needs to be profitable -- it's taken a long time to get back to profitability, and it needs to stay there. This is why I'm mildly concerned about the company's new commercial product line. Yes, it could provide growth. But if it builds up commercial inventory without demand, then it could be stuck with hardware collecting dust.
In my opinion, Peloton's path to profitable growth is not straightforward. Revenue has been going backwards for years. Even though the stock is cheap, I'm content to wait for Peloton's business to start gaining traction before believing it will make a worthwhile investment.
