Is Peloton Stock A Good Buy?

Peloton Interactive gets added to the Nasdaq 100 index

Wall Street bears had to take another loss in 2020 as Peloton Interactive will be added to the Nasdaq 100 index.

While Peloton might often be remembered for its controversial 2019 holiday ad, it is also known for being one of 2020’s top stock performers — so it’s not always negative.

And this is most definitely a positive story for Peloton after it was announced on Friday that the connected fitness equipment maker will join the ranks of its large-cap tech peers via inclusion in the Nasdaq 100 index on December 21. The annual year-end shake-up to the technology-heavy index will result in the removal of six companies and the addition of six others, with those being added including:

  • Peloton
  • American Electric Power
  • Marvell Technology
  • Match Group
  • Okta
  • Atlassian

Many of the names being added to the Nasdaq 100 index have seen a surge in demand for their product offerings due to the COVID-19 pandemic and its related restrictions on businesses and social gatherings. Peloton is the most obvious inclusion in this case, with its stock up 312% year-to-date, complemented by a 172% jump in sales, largely due to increasing consumer preference to work out from home.

What’s the benefit of Nasdaq 100 membership?

You might be wondering why this is important for a company, so let me fill you in. Simply put, inclusion in such a well-known, well-trusted exchange opens Peloton stock up to a whole new range of investors, as well as somewhat silencing bearish sentiment that it is simply a ‘fad’ stock.

Let’s look at the core benefits of being included in an index such as the Nasdaq 100:

  1. More Stock Gets Purchased

The Invesco QQQ — an ETF that tracks this index — must now buy shares in Peloton, so getting listed on the index creates a discrete but positive change in demand and a broadening of your investor base.

  1. Wide Following

The Nasdaq is one of the most widely followed indexes in the world and is well-known and well-trusted. Because of the popularity and large company size, member companies are followed by an army of stock analysts, and thus there tend to be fewer price inefficiencies due to heightened scrutiny.

  1. (Hopefully) Reduce Volatility

This can be good and bad. If an index fund buys a company’s stock, they’re just buying it and sitting on it. They’re not buying and selling stock actively, which, on one hand, should help reduce volatility. On the other hand, the actual number of shares being traded on the market is reduced, meaning that reactions to news or an earnings report could increase volatility in the short-term.

  1. Prestige

Ok, so I know this is might seem superficial, but it’s still no bad thing to be able to turn around to investors and say: “Hey, look at us! We’re part of the Nasdaq now.” It certainly doesn’t hurt Peloton’s bull case.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above.