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Should I Sell Peloton Following Its Mass Treadmill Recall?

Shares in Peloton plummeted yesterday following a mass product recall, but is this as bad as it seems?

It’s one thing to release a controversial Christmas commercial that became the laughing stock of Fintwit (see image above), but Peloton (NASDAQ: PTON) now has a real dilemma on its hands. 

All of its treadmills are being recalled and the ubiquitous influence of panic selling is being felt by investors. 

What does this mean for Peloton?

The mass voluntary recall of any product is never a good look for any company, which is exactly what Peloton has been forced to do with its Tread+ and Tread treadmill machines over safety concerns.

In a statement, Peloton CEO John Foley apologized for not acting more quickly to resolve the issue after reports of one death and dozens of injuries.

“I want to be clear, Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s request that we recall the Tread+. We should have engaged more productively with them from the outset. For that, I apologize.”

Now, before hitting the panic button, take a deep breath and look at the situation from a distance:

  1. Treadmill products are estimated to represent barely 2% of all Peloton unit sales for 2021 — barely 30,000 units. 
  2. Peloton is working with consumer protection groups to correct its products. 
  3. Hardware recalls are quite common amongst consumer goods companies. In fact, we covered this very point recently and how companies can thrive following such adversity here
  4. Peloton’s future lies in subscription software, not hardware. 

While there is reason to be concerned about this situation, I don’t believe that the company’s fundamentals have changed. How Peloton pulls through this dark period will determine its longevity and potential, and tonight’s earnings call should be a reminder of its strength.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here

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