Peloton's stock looks primed to make some significant progress after their disastrous period over the last few months? Or should investors give it a miss?

What's happening to Peloton's share price?

Peloton's share price jumped over 27% Monday morning as takeover rumours broke out. That makes something of a turnaround in Peloton's stock which has slumped almost 70% since 1 November.  Back in November Chief Financial Officer Jill Woodworth said that the company was looking to cut costs as revenue growth and subscriptions slowed compared to the early days of the pandemic.

Why has Peloton's share price plummeted?

Peloton's stock was a darling of the pandemic era as office workers exercised at home en masse. Yet demand has crumbled with the company having to pause production as unsold bikes and treadmills pile up. Last time Peloton updated the market with quarterly results it posted a $376m loss, down from a $69.3m profit from the same period last year. Management consultants McKinsey have now been brought in to look at the company's cost structure and possibly job cuts.

Why are Amazon and Nike being linked to Peloton?

Amazon has broad ambitions when it comes to healthcare. On the fitness front it offers its own Fitbit-like wearable in the form of Halo, with a second version of the device added last year. The e-commerce giant also sells its own range of gym equipment. For Nike, picking up the at-home exercise company could be a natural fit for the sports brand (it already offers the Nike Training Club app). It would also open up cross-selling opportunities as any purchase would mean inheriting over 2m subscribers already using Peloton's remote fitness classes.

Wedbush analyst Dan Ives has also said that with all the media reports swirling, he would not be surprised "if Apple is not aggressively involved in this potential deal process". Ives added in a note to investors that Peloton would "fit well into Apple's golden consumer ecosystem", and that the tech company has a substantial war chest to pull off the acquisition.

What would an acquisition mean for the Peloton share price?

Peloton's share price could benefit as takeover talks - and potential counter bids - gee up the stock. Should an offer come in that's higher than the current market cap, then the rally in Peloton's share price could continue. However, investors should be wary of piling in should a deal not emerge. Jonathan Komp at Baird said in a note that a sale is unlikely to happen unless the plummeting Peloton share price creates enough pressure in the business to force a sale - it's worth noting that Peloton's dual share class structure means that co-founder John Foley and other insiders get a veto on major decisions.

When is Peloton reporting earnings?

Peloton reports second quarter earnings Tuesday 8 February. Losses are expected to come in at $0.27 per share, a sharp increase on the $0.03 loss per share in the same period last year, according to data from Yahoo Finance. Revenue is pegged at $1.26bn.

For the full year, losses are expected to come in at $2.91 a share,  up from a $0.3 loss per share last year. Revenue is forecast at $4.26bn, up 5.8% compared to the same period last year.

As important as numbers are, investors will be watching out for what management has to say about either an acquisition or long-term steps to rebuild the business.

Anyone thinking of buying Peloton's stock on the cheap should bear in mind that deal or no deal, the company has a lot of work ahead of it to get back on track. The pandemic created a golden moment for the stock, and while there's still demand for what Peloton offers, the share price is unlikely to see the highs experienced at the height of the pandemic any time soon.

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