Peloton (NASDAQ:PTON) was making headlines last week. In a rare (for 2021 and 2022) bit of good news for shareholders, PTON stock rallied 28% over the course of the week. The catalyst was an analyst upgrade that rated PTON as “outperform,” giving the stock a $40 price target.
With at least one analyst projecting PTON has 50% upside, a considerable paying user base to work with and a new CEO trying to right the ship, is it time to put the past 15 months behind and embrace PTON’s potential to be a long-term growth stock?
I don’t want to burst your bubble if you see this at the start of Peloton’s great comeback story, but I don’t buy it. It’s not just that the company needs to address so many issues, ranging from fixing its supply chain (even tougher now that the company is scrapping its planned U.S. factory) to selling rusted bikes to consumers. The company is facing challenges from multiple directions, including competition for both bike buyers and fitness subscribers. There are also economic factors that spell trouble.
Here are the details on why you should still avoid PTON stock.
Gym Attendance Is Recovering
The first of Peloton’s many challenges is one that has been a factor since early last year. Gym attendance is bouncing back to pre-pandemic levels. It’s no secret that the key to PTON stock’s dramatic rise through 2020 was the pandemic. Cities experienced lockdowns, gyms were temporarily shuttered and people ordered Peloton bikes to get their fitness fix at home.
The country re-opened in 2021, kicking off the reversal in Peloton’s fortunes. Covid-19 may still be around, but the appetite for further lockdowns is low. That puts Peloton back in competition with traditional gyms, fitness clubs and spin classes. Even with a basic app subscription for $12.99 per month, Peloton isn’t particularly cost-effective compared to a budget gym membership, which also gives you access to workout equipment.
Other Companies Make Premium Exercise Equipment
Peloton’s reputation for making premium, must-have fitness bikes (and treadmills) has been tarnished. From the aforementioned issue of selling rusty equipment to unwitting consumers, to safety recalls and fluctuating prices, the reputation — and desirability — of Peloton products has taken a hit.
Awareness has grown that Peloton doesn’t have a monopoly on high-end bikes and treadmills. There are many companies making premium, home fitness equipment, that’s competitive with Peloton’s offerings.
Apple Is After Its Subscribers
The company is increasingly looking to its Peloton App as a key element in future growth. With a $12.99 month subscription model, it offers at-home fitness instruction without the need to buy a costly bike. Sounds good. But Apple (NASDAQ:AAPL) is a big problem here.
In Peloton’s core U.S. market, Apple’s iPhone rules. And Apple is heavily pushing its own Apple Fitness+ subscription fitness app. It’s priced the same as the Peloton App at $12.99, but Apple includes Fitness+ as part of its all-in-one Apple One subscription service. Apple is not only able to promote its apps to iPhone owners through prominent placement and free trials for new iPhone buyers, the company’s privacy features are making it much more difficult for companies like Peloton to target iPhone owners with ads.
Economic Factors May Squeeze Consumer Spending
In addition to all the direct threats to its business, Peloton is also facing challenging economic conditions. Rising interest rates and runaway inflation adds pricing pressure. However, if Peloton raises prices, it risks losing customers to cheaper alternatives. In addition, tough economic times like these can result in consumers tightening their spending in general as they look for ways to cut costs. Expensive exercise equipment and monthly app fees are liable to be on the chopping block for many.
Bottom Line on PTON Stock
I’m not saying that when all is said and done, Peloton won’t be able to turn things around. Anything is possible. Despite all the negatives surrounding the company, it still has many fans and a large base of users who are willing to pay a monthly subscription fee.
That being said, I do not share the optimism of some analysts — certainly not those who are projecting 50% upside for PTON stock. Despite its encouraging week, PTON stock remains down 22% in 2022. Over the past 12 months, it has dropped by 75%. The company faces an uphill battle with fierce competition, a resurgent gym industry and economic storm clouds. PTON stock may have rallied last week, but it still scores lowly “F” rating across the board in Portfolio Grader. That’s an “F” for its fundamental grade, an “F” for its quantitative grade and an “F” total grade.
I said it in February, and I’ll say it again now. PTON stock has no place in your growth portfolio.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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