Peloton Stock Slimmed Down to Its Base Again

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Peloton (NASDAQ:PTON) stock is not for the faint of heart investors.

Peloton (PTON stock) sign on city storefront

Source: JHVEPhoto / Shutterstock.com

The company had the misfortune of coming to market just before the pandemic hit. The first few months of existence were going fairly well. PTON investors succeeded at building a base. There were sizable rallies and reasonable declines, but then we hit the reset button on the whole world.

Peloton stock crashed to a new low in March 2020. This was not unusual since every stock on Wall Street did about the same. But then investors went nuts and they rallied it almost 900%. The high watermark came in January of this year, and that was the end of the party for the bulls. Since then PTON stock lost 74% of its value.

Part of it was part of normal rally retracement price action. But more recently there were several intrinsic problems with the company. Falling from $170 into $100 per share was reasonable. Because that’s how bulls establish footing to hold the momentum in a rally. But then the company announced tragic events with one of their products.

PTON Stock Is Back to a Strong Base

The headline alone caused violent losses of market cap. And the operational and legal messes that come from this tragedy will linger. It is important that management handles the matters responsibly to stop further injuries.

The good news on PTON stock is that the price has fallen back into the pre-pandemic neckline. Often when stocks do that, they find buyers willing to take a chance on them. This morning it rallied on a new Covid-19 variant.

The company deserves credit for having the foresight for the service. They positioned themselves just right for the pandemic. The lockdowns made it clear for the rest of us how much sense their idea made. Last year’s events gave them a huge boost, and now they have more than 5 million members. Next comes the important step of retention and growth post pandemic. From these levels, the stock looks attractive enough for long-term investors.

Fundamentally they also have more competition now than ever. The workout at home industry has attracted new entrants including Lululemon (NASDAQ:LULU). Also, Tonal is employing celebrity athletes like LeBron James just to name one. Moreover, the vaccine is bringing people back into their regular gyms. I’m part of that group and I would rather work out there than alone at home.

Peloton Deserve Some Credit

Peloton (PTON) Stock Chart Showing Potential Base

Source: Charts by TradingView

I am willing to give them credit for now. With that many members I am certain that they can fine tune the sales mix. Currently, it’s mostly about selling hardware, with a monthly service layer. They already are talking about new products like the smart camera. People are now more open to virtual interactions, so it’s a blank canvas for Peloton.

Fundamentally the fundamental metrics are not bad because of the pandemic boost. Therefore I doubt they are reliable as a gauge for progress. I wouldn’t spend too much time deciphering whether PTON stock is cheap or not. This is an developing business, and management is under the microscope already. It is important that they keep investor focus on the efforts to grow the business.

Headlines aside, the time to panic out of the stock was weeks ago. Nevertheless, there’s still risk from the fact that the indices are at all-time highs. If we have a mild correction on Wall Street, Peloton stock could  fall further. Investors who are braving into it now should leave room for error. I would only take partial positions until as we get clarity from management.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.

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