Once a darling of the stock market, Peloton Interactive, Inc. (NASDAQ:PTON) has seen a dramatic decline from its pandemic-induced highs. Peloton stock, which peaked at $167 per share in January 2021, is now trading at just $4.56, a staggering 97% drop. The question for investors is whether this beaten-down penny stock is a bargain or a trap. In this article, we analyze Peloton’s recent performance and its future prospects to help you decide whether to invest in Peloton stock.
Peloton Stock Rallies After Fiscal Q4 Results
Despite its significant decline, Peloton stock saw a glimmer of hope after its fiscal Q4 2024 results. The stock surged 35% on August 22, following the company’s announcement of its first quarterly revenue growth in nine quarters. Peloton reported $644 million in revenue, slightly above Wall Street’s expectations of $631 million, and a loss of $0.08 per share, which was much better than the anticipated $0.17 loss.
This positive movement in Peloton stock was largely driven by the company’s cost-cutting initiatives, which have helped reduce its losses from $241.1 million to $30.5 million over the past year. Although overall sales grew by only 0.2% year-over-year, the improvement in profit margins and better-than-expected results provided a temporary boost to the stock.
Cost-Cutting Measures and Their Impact on Peloton Stock
Peloton has been focusing on cost reduction as a key strategy to manage its financial challenges. In early 2024, the company announced a restructuring plan that included cutting 15% of its global workforce, aiming to achieve $200 million in annual cost savings by fiscal 2025. These efforts have started to bear fruit, as seen in the company’s positive adjusted EBITDA of $70 million in fiscal Q4, significantly higher than the $53 million expected by analysts. Additionally, Peloton achieved a free cash flow of $26 million, a notable improvement from the $74 million cash outflow in the same period last year.
These financial improvements have provided some breathing room for Peloton stock, which had been struggling with liquidity issues. The company’s successful debt refinancing process has also helped stabilize its financial position, contributing to its recent stock price rally.
Future Prospects for Peloton Stock
While Peloton has made progress in reducing costs and improving its financials, the future of Peloton stock remains uncertain. The company has indicated that it will continue to invest in its hardware and subscription software to enhance user engagement. However, these investments are not expected to drive significant subscriber growth in the near term, as the company prioritizes profitability over expansion.
Peloton’s decision to cut back on sales and marketing expenses, which were unsustainably high during the COVID-19 pandemic, has also impacted its growth prospects. In fiscal Q4, sales and marketing spending decreased by 19% year-over-year. This reduction, while necessary for financial stability, may limit the company’s ability to attract new customers.
Looking ahead, Peloton has provided conservative guidance for the September quarter, forecasting sales between $560 million and $580 million, well below the consensus estimate of $609 million. However, the company’s EBITDA forecast of $50 million to $60 million exceeded the $45 million anticipated by analysts. For fiscal 2025, Peloton expects revenue between $2.4 billion and $2.5 billion, again lower than the consensus estimate of $2.7 billion.
Should You Buy Peloton Stock?
Peloton stock remains a high-risk investment, with mixed signals from its financial performance and future outlook. Analysts are divided on the stock, with 16 out of 20 recommending a “hold” rating. The average price target for Peloton stock is $5.41, representing a potential upside of 17.6%.
For investors considering Peloton stock, it’s essential to weigh the company’s recent financial improvements against its uncertain growth prospects. While Peloton has made strides in reducing costs and improving cash flow, its low profit margins and declining sales figures make it a risky bet. Those with a higher risk tolerance might see Peloton stock as a potential turnaround story, but it’s crucial to proceed with caution.
