Peloton Stock: Is It a Good Buy?
The COVID-19 pandemic led to the emergence of a handful of retail memes that qualify for the collective time capsule. We will remember the brawls over toilet paper. We learned that paper towels are among the top household items we rely on as much as toilet paper. On a lighter note, we turned our bedrooms and living rooms into gyms, and survey results reveal that we’re not looking back.
Although fitness equipment is widely available these days — consumers can order a treadmill on Amazon, for starters — the high-end stationary bikes produced by Peloton became the face of at-home fitness during the pandemic. Not surprisingly, Peloton’s stock price has followed suit — moving from $29 per share at its initial public offering in late September 2019 to more than $100 per share about a year into the pandemic. The company also posted a profit for the first time.
On the surface, Peloton stock looks like a growth story still worth betting on — but there are multiple layers of complexity at play.
Peloton’s Controversies During a Year of Growth
Although Peloton’s product offerings have been in demand throughout the pandemic, the company has found itself steeped in struggle.
Demand and Supply Problems
Throughout the pandemic, retailers — including Peloton — have faced supply chain issues that have slowed delivery and aggravated customers. In Peloton’s case, where the price point starts at around $2,000 and goes up to more than $4,000, customers have not taken the delays lightly. Angry buyers have taken to social media sites like Facebook, Reddit and Twitter to voice their complaints and elevate concerns over shipping delays.
The supply chain issues prompted Peloton to ship its bikes overseas by air for a while, which it said increased its transport costs tenfold.
A Product Recall During a Period of Surging Business
Just over a year into the pandemic, Peloton faced concerns about its Tread+ and Tread treadmills.
On April 17, the U.S. Consumer Product Safety Commission issued a warning about the safety of these products and asked consumers to stop using them. The commission linked the treadmills to several dozen incidents of children and pets being pulled under the machines and suggested that adult users may be at risk as well if they lose their balance.
Peloton initially chose to argue against the safety warnings. The company later reversed course by issuing a product recall. It also rolled out an auto-locking feature via a software update and announced that it will offer a full refund on the $4,000-plus machines for any consumers who request one by November 2022 and a partial refund to those who contact the company after that point.
In the few months prior to the safety concerns over its treadmills, Peloton had quietly dealt with another serious concern: customer privacy. A security research firm found that Peloton’s application programming interface allowed anyone to discover a user’s age, gender, geographic location, weight, workout history and, in some cases, date of birth.
The firm reported the leak to Peloton on Jan. 20 and requested a fix within 90 days. Although the company restricted access to users, it remained silent on the issue until after the deadline had lapsed and reporters followed up. At that point, Peloton confirmed that the fix had been made and acknowledged its unresponsiveness, vowing prompt responses moving forward.
Two Shareholder Class-Action Lawsuits
On April 29, the Rosen Law Firm filed a shareholder class-action lawsuit, asserting that Peloton’s shares dropped in value by more than 14% after the company decided to keep selling its treadmills despite the noted safety concerns. Almost a month later, on May 24, a second shareholder class-action lawsuit surfaced, highlighting concerns that Peloton’s stock suffered another 14% drop after the company reversed course and opted for a product recall.
Peloton now expects its fourth-quarter revenue to land at $915 million, which amounts to a 51% increase year over year. That may sound like a strong growth story, but it’s down from the triple-digit growth levels that the company reported last year.
An Increasingly Competitive Climate
In part due to the COVID-19 pandemic, at-home gym equipment has surged in popularity. Although Peloton has appeared to capture more consumer mindshare than its competitors, there are several worthy opponents in the space — and many are giving Peloton a run for its money in terms of both pricing and features.
Bowflex makes the VeloCore bike, which leans into your movements (something a Peloton won’t do). The company sells a connected membership with workouts, coaching and on-demand classes.
NordicTrack’s S22i cycle adjusts for inclines and declines, and instructors can adjust the bike virtually during a digital class. NordicTrack’s Silent Magnetic Resistance System makes for a quiet ride, and you can test drive the company’s connected iFit membership free of charge for a year.
Other noteworthy competitors are the compact, easy-to-move Echelon EX-5s, the amenities-rich MYX and the compact, highly adjustable Keiser M3i.
A Rebound Effort Pedaling at Full Throttle
Despite these signs of turbulence, Peloton shows no sign of giving up on its new customers and newfound profitability. The company has a number of new developments underway, including the following:
- Integration with Precor: On April 21, Peloton announced that it had closed on its acquisition of fellow fitness equipment provider Precor. The move positions Peloton to potentially be able to begin producing in the U.S. by the end of this year.
- Ohio factory: The company has also announced plans to create 2,000 jobs and build a $400 million factory in Ohio, saying it has been in the works for four years.
- New pricing options: The company has introduced tiers for its app, which typically costs $12.99 per month. Peloton has announced that students will pay $6.99 monthly while teachers, healthcare professionals, first responders and military personnel and their families will pay $9.99 monthly — a rate that’s now locked in for life for the latter group.
- Product development: Peloton has started customizable fitness programs, refreshing current running and biking classes with resets for settings and music.
- Employee benefits: The company will now provide its employees with paid time off to vote, protest peacefully or volunteer for political candidates. Although it is not the only company to do so, Peloton’s decision is likely a positive for retention.
Good To Know
According to a 2019 survey of Peloton subscribers, four out of five weren’t looking into home fitness equipment prior to purchasing one of Peloton’s products. That makes for a very large potential customer base that could emerge suddenly — much like what happened during the pandemic.
Should You Bet on Peloton’s Future?
Peloton has faced a number of speed bumps in the past year, and the company is nowhere near out of the woods. It has something to prove in terms of stateside manufacturing prowess, quality control and customer service. Yet the company knew, long before the pandemic struck, that there was a market for upscale, connected fitness equipment at home. It also built a business model with a dual revenue stream: equipment sales and digital memberships.
Green Light, Red Light or Yellow Light?
Is Peloton a buy, sell or hold? According to Zacks, Peloton is currently a hold — in other words, a yellow light. Although Peloton must navigate shareholder lawsuits and its integration with Precor, it is working on a number of developments that may be good for the business and potentially the stock price.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Peloton. "An Update On Your Delivery Experience."
- U.S. Consumer Product Safety Commission. 2021. "CPSC Warns Consumers: Stop Using the Peloton Tread+."
- Reuters. 2021. "Competing shareholder class actions against Peloton show 'everything is securities fraud' trend."
- NBC News. 2021. "Peloton releases software fix for recalled treadmills."
- MarketWatch. 2020. "Peloton produces profit for the first time amid pandemic-demand spike, stock pushes toward new record."
- TechCrunch. 2021. "Peloton’s leaky API let anyone grab riders’ private account data."
- Securities and Exchange Commission. 2019. "Form S-1."