Peloton (NASDAQ: PTON) saw a drop of over 35% in its stock price on Friday following a disappointing earnings call on Thursday evening. The fitness technology company managed to meet its own guidance for the quarter, but was forced to cut its full-year sales outlook by roughly $1 billion.
This cut has led to a costly downgrade from Wall Street analysts, with some cutting the price target on the stock by over 40%. CFO Jill Woodworth admitted, “We underestimated the reopening impact on our company.” A 35% drop will undoubtedly worry investors, but should they be looking to sell their shares in Peloton?
Why does this matter to investors?
Down over 60% year-to-date (YTD), Friday’s sudden drop hasn’t exactly come out of nowhere. Many stocks that saw a huge boost during the COVID-19 pandemic have experienced a massive fall off since the world began to reopen. Digital media and streaming company Roku was a darling of the pandemic, but it too met investors with disappointing earnings this quarter. Even larger companies like Netflix and Zoom, two of the pandemic’s biggest growth stocks, have posted stock price declines in the past week. People have been returning to the real world and stay-at-home stocks have suffered.
In an effort to quell rising costs, Peloton announced a freeze on hiring across all departments on Friday. Friday’s stock crash wiped over $9 billion off the company’s market value, so drastic steps had to be taken to ensure no further losses. Investors will be waiting to hear word from the company on exactly how it plans to deal with the new outlook for the future.
Following its rapid growth in 2020 as a result of the pandemic, Peloton invested heavily in itself through the acquisition of fitness equipment manufacturer Precor and through investment in air freight to try to expedite delivery times. Fears that the company has spread itself too thin financially are now abundant across Wall Street as concerns around Peloton’s growth continue to heighten.
So is Peloton a good investment?
Investors will have to monitor the situation with Peloton very carefully. The company was a huge industry disruptor when it brought out its first range of bikes and it maintains very high levels of customer retention within its subscription model. A stock firesale is certainly a rash reaction, as there’s still an awful lot about the company to be positive about.
Much will depend on just how Peloton reacts over the next couple of quarters. The 2020 growth it experienced was unprecedented and entirely unpredictable. Now, with markets regressing back to the mean, the company will have to reassure investors of its value proposition. Peloton was certainly a worthy stock to buy and hold prior to the pandemic explosion, so now if it can navigate what is an inevitable come-down, it has every chance to remain a strong pick.
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Financial Writer at MyWallSt
Pádraig’s favorite stock is Nike. Growing up as a sports fanatic, seeing Nike collaborate with athletes like Jordan, Lebron, and Ronaldo inspired him and cemented the brand in his mind. Now, despite having failed miserably in his attempts to earn a fabled Nike sponsorship, he still believes in the innovation and creativity behind Nike and is convinced they will only grow stronger as the world's leading sports brand.