Peloton Stock Price Falls 20% – Time to Buy PTON Stock?

While Peloton (PTON) stock was among the biggest gainers of 2020, it has looked weak in 2021 and is down over 20%, underperforming the markets by a wide margin. What’s the forecast for PTON stock and should you buy the dip in the stock?

The fall in Peloton stock is due to both macro and company-specific factors. On the macro-level, there has been a sell-off in the so-called “stay-at-home” stocks amid the reopening. Incidentally, Peloton competitor Beachbody, which went public through a SPAC (special purpose acquisition company) merger this year, is also trading way below the SPAC IPO price of $10.

Why has Peloton stock price fallen?

Meanwhile, along with the macro weakness in growth stocks, which have fallen out of favor with investors amid concerns over rate hikes, company-specific factors are also weighing down Peloton stock. The company had to go for a recall in May after its treadmill was involved in a fatal crash.

The company’s initial reaction wasn’t very conductive and it said that it won’t recall its Tread+ equipment even as it admitted to the accident. However, in May, the company finally announced a recall. The stock tumbled after the recall as markets saw it as a long-term negative. KeyBanc analyst Edward Yruma called the recall a “clear negative” while Bank of America downgraded the stock one notch from a buy to neutral while lowering the target price by $50 to $100.

While PTON stock has come off its 2021 lows, it still hasn’t been able to recoup most of the losses. The general pessimism towards growth stocks hasn’t been helping matters.

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PTON stock price earnings

Meanwhile, Peloton management would get an opportunity to interact with analysts today when it releases its fiscal fourth-quarter 2021 earnings for the quarter and full-year ended June 30. Analysts polled by TIKR expect the company to report revenues of $928 million in the year, a year-over-year rise of 53%. The growth rates are much below the triple-digit topline growth that the company has reported over the previous few quarters. However, the product recall along with unfavorable yearly comparisons would weigh on the company’s topline growth in the fourth quarter as well as the next few quarters.

Peloton was among the beneficiaries of the changed consumer behavior last year as consumers pivoted to home gym equipment as gyms outside over closed. However, as the economies have reopened, people have again started to visit gyms. For the most part of 2020, Peloton was a supply-constrained company struggling to meet the soaring demand. However, as the economy reopens, the company might face a slowdown in demand.

What to watch in Peloton stock earnings?

During Peloton’s earnings call, markets would watch out for the subscriber growth. Also, the company might provide updates on the product recall. Finally, the management might provide some updates on the allegations that the company unfairly charged sales tax in some states. Several PTON users have filed a class-action lawsuit claiming they were charged a sales tax while the service should have been tax-exempt as it is a “digital good.”

Peloton stock price forecast

Meanwhile, most Wall Street analysts are bullish on Peloton stock. It has received a buy or equivalent rating from 22 out of the 29 analysts polled by CNN Business. Five analysts have a hold rating while the remaining two analysts rate the stock as a sell. PTON’s median target price is $135 which is a premium of 16.2% over current prices. The stock’s street high target price of $185 is a premium of over 59% while the street low target price of $45 implies a downside of 61.3% over the next 12 months.

Earlier this week, Oppenheimer reiterated their outperform rating on PTON stock while raising the target price by $10 to $150. “While we believe PTON will meet F4Q21 connected-fitness sub expectations on shorter-delivery times, we now expect FY22 guidance to be more conservative, and below consensus expectations, especially with the delayed Tread re-launch slated for September,” it said in its note.

Last week, MKM Partners also raised their target price from $110 to $130 while reiterating their buy rating on Peloton stock. “On the heels of a flurry of recent positive developments we believe innovation and execution at Peloton continue to improve,” it said in its note.

PTON stock price valuation

Peloton stock currently trades at an NTM (next-12 months) EV (enterprise value)-to-sales multiple of 6.85x. The multiples are in line with the 6.3x that they have averaged since it went public. The multiple made a high of 11.36x late last year amid the euphoria towards growth and “stay-at-home” stocks. The lowest NTM EV-to-sales multiple for PTON stock is 2.42x that it had hit amid the sell-off in US stock markets in the first quarter of 2020.

Technical analysis

Looking at the technicals, the 50-day and 100-day SMA (simple moving average) of Peloton stock is converging. Currently, the stock trades below both these levels. The 50-day SMA was strong support for the stock previously but has been acting as s resistance after the stock fell below the level. If PTON stock can cross above the 50-day and 200-day SMA after the earnings release, it would signal technical bullishness.

The MACD (moving average convergence divergence) gives a buy signal for Peloton stock while the 14-day RSI (relative strength index) is 53 which is a neutral indicator.

All said, while the high growth rates for PTON have come down from the 2020 highs, the company should still see reasonably high growth in the near foreseeable future. It also has significant opportunities to expand globally. Home gym as a concept is gaining traction which bodes well for companies like Peloton.

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