Peloton Interactive (PTON 1.67%) stock has been crushed over the past few years. Not only is it 97% off its all-time high, but it also currently sits 78% below its first-day closing price.
However, the company seems to be demonstrating progress. Is this an incredible opportunity to buy Peloton stock before it starts rising again? Or is Peloton too broken to be fixed?
What's going right, and what's going wrong
Peloton has struggled to regain its traction over the past few years despite mighty efforts and several CEO changes. The connected fitness company sells exercise equipment, including stationary bikes and treadmills, that connect to live and recorded classes, as well as subscriptions to online classes. It has started selling through partners like Amazon and Dick's Sporting Goods to expand its reach, and it has created partnerships with universities and hotel chains, along with many other actions. But its financial progress has been limited.
Image source: Peloton.
Here are some of the highlights from its fiscal 2026 third-quarter report, which it released on May 7:
- Revenue increased 1% year over year.
- Gross margin improved 0.9 percentage points to 52%.
- Free cash flow increased 59% to $151 million.
- Connected fitness subscriptions fell 7.6% from last year to 2.7 million.
One bright spot in the quarter, which ended March 31, was the commercial business, which is its Precor unit. Sales increased 14% year over year, and Peloton is launching a new line for gym and high-traffic environments.
As for the rest of the business, management is aiming to drive customer engagement and revitalize the company using data to optimize the user experience and meet demand wherever it is at any time.
It has done a better job of cutting costs and moving toward profitability. Management is guiding for positive net income for its fiscal 2026, which would be an impressive feat. It has drastically lowered costs by laying off workers, reducing marketing spending, and what management calls rightsizing its cost structure.
NASDAQ: PTON
Key Data Points
Is it time to buy?
The market appreciated Peloton's update last week, and the stock popped, but by late Monday, it had already given back its gains, and the stock is down by 14% year to date. Even though Peloton notched a few wins in the quarter, it can't compensate for a dwindling subscriber base by improving its operating efficiency. While a more sustainable cost structure and a move toward positive net income are great steps, investors want to see a boost to the business.
Management noted that subscriber churn is improving and that the subscription decline rate is decelerating. The focus on rightsizing has positioned the company for profitable growth when subscriptions begin to grow again. It's making efforts to better understand what consumers want so that it can attract new customers, and it also has other ways to increase revenue through partnerships, and those are tailwinds that are not reflected in its subscription numbers.
So I don't think the company is broken. Anecdotal evidence is predominantly positive. I think Peloton has an interesting and distinctive business that appeals to affluent consumers, but it's taking time for management to pinpoint the right direction. On the other hand, since it hasn't quite mastered that yet, Peloton stock is still a risky buy. For the average investor, I would recommend keeping it on your watch list.
