Peloton (PTON): Fear or Cheer?

Since its January peak at just over $167, it’s down nearly 50% to roughly $86 as of this writing. Below you can see that Peloton saw buying in the shares in late 2020 and January.

Recently, it’s fallen far:

Source: www.mapsignals.com, End of day data sourced from Tiingo.com

Recent news broke that Peloton is recalling its Tread and Tread+ treadmills. This is due to 70+ safety incidents and a child’s tragic death.

Investors who bought into the growth story might be wondering if it was a colossal mistake.

To answer that, let’s first let’s revisit why Peloton looked like a great setup in the first place:

Peloton boasts:

  • 1-year sales growth of 100%
  • 3-year sales growth of 103%
  • 1-year earnings growth of 62%
  • Gross profit margin of 45%

It’s also owned by the big boys and girls with 78% institutional ownership. Peloton was also collecting lots of Big Money buy signals according to MAPsignals data: logging 12 Big Money buys since July 1st, 2014.

That just means that the shares were increasing in price as volumes increased.

Things looked great for Peloton to continue its massive bull run. But suddenly in mid-February, growth stocks met headwinds. Since then, high-growth stocks fell from grace in favor of value and dividend stocks.

PTON was already falling 30-40% when tragedy struck for some pets and children and their new product is now in recall for repair or refund. They’ve sold roughly 125,000 tread units as high as $4200 each. The company said this will impact Q4 sales by -$165 million.

This is definitely not great for the short-term at least. It’s got a lot of investors spooked and running for the hills.

The question remains though: Is it time to grab it or bag it?

Let’s first look at their most recent earnings report.

Peloton just reported a 3-cent EPS loss, beating the 12-cent loss expectations for their fiscal third quarter. They posted $1.26 billion in sales, beating estimates of $1.1 billion. Revenue grew a shocking 141% from a year ago.

PTON showed $239.4 million in subscription revenue, up 144%. This is a key point. The company looks like it sells exercise equipment, but they sell content. Their classes and content costs are a subscription fee paid monthly.

In a shareholder letter, Peloton explained they have over 4.4 million members (as of December 31, 2020). Total members grew 22.2% since the prior quarter, up from 3.6 million. At $39 a month, that’s $2 billion a year. And it’s growing.

Even with the recall impact, Peloton is still guiding $915 million in revenue for Q4, 2021.

First, the exodus from growth stocks dragged down the stock. Then terrible headlines hit further amplifying the stock’s pullback.

This reminds me of a current titan that was once a volatile young growth story: Tesla, Inc. (TSLA).

In 2013 news broke of a battery fire in the Model S after a driver ran over a large metal object. On October 3rd, 2013 a Reuters article read:

  • Two days after a video of a burning Tesla electric car went viral, the “green car” maker grappled with ways to contain the damage as investors shaved $2.4 billion off the company’s market value.
  • Tesla shares fell 4.2 percent to close at $173.31 on the Nasdaq. That came on top of a 6.2 percent drop on Wednesday.

I remember the media said Tesla stock was done. The story was ruined, and no one would buy their cars. The stock got smoked. Remember: it was trading at $173.

Now look at this chart:

Source: www.mapsignals.com, End of day data sourced from Tiingo.com

The battery and subsequent engine fires from crashes, look tiny in the rearview mirror now. TSLA peaked at around $883 in January and then pulled back to $635 as of this writing. From the bad 2013 headlines the stock is up 267% after peaking up 410%.

Very few companies change the game like Tesla did for cars, or Peloton for exercise.

Remember, there tends to be gloomy headlines from time to time for nearly all stocks. Years later, investors will likely forget them. When you have a great growth story on your hands, it doesn’t always mean a smooth ride.

In the case of Peloton, it’s hit a snag. But times like these could represent potential opportunity for the long-term investor. Only time will tell.

Disclosure: the author holds a long position in TSLA in personal accounts at the time of publication, but no position in PTON.

Learn more about the MAPsignals process here.

For a look at all of today’s economic events, check out our economic calendar.

Why Shares Of Peloton Are Up By 5% Today?

Peloton Video 07.05.21.

Peloton Stock Rebounds After Sell-Off

Shares of Peloton gained upside momentum as traders rushed to buy the stock after the recent sell-off.

Peloton has recently provided its quarterly report, beating analyst estimates on both earnings and revenue. However, the market focused on the recall of Peloton’s treadmills, which is projected to cost $165 million.

Previously, the company insisted that its treadmills were safe if used properly, but it has succumbed to regulatory pressure and stated that its initial response to Consumer Product Safety Commission was a mistake. Peloton stopped the sales of treadmills and promised to introduce more safety measures.

What’s Next For Peloton?

Peloton shares tested highs at $171 at the beginning of this year, but company’s internal problems and valuation concerns pushed the shares towards recent lows at $80.48. This is a significant pullback that has clearly attracted speculative buyers who are willing to bet that the company will manage to successfully navigate the treadmill crisis and continue to grow.

The direct financial impact of the current crisis is not huge since the majority of company’s revenue comes from its popular bikes. The main question is whether Peloton will be able to quickly solve its problems with regulators and come up with a safer treadmill.

While Peloton shares have lost a lot of ground since the beginning of this year, the stock is valued at about 125 forward P/E for 2022 which is a very rich valuation even for the current market environment.

To justify this valuation, Peloton must grow at a fast pace, and it needs the treadmills to boost its revenue and expand its customer base. In this light, I’d expect that the market will focus mostly on the treadmill story rather than on the company’s financials in the next few months. If Peloton manages to solve the problem quickly, the stock will have a good chance to gain solid upside momentum.

For a look at all of today’s economic events, check out our economic calendar.

Will Earnings Season Bring Volatility To The Stock Market?

The Commerce Department last week reported that the U.S. economy grew at a +6.4% annual rate in the first quarter, slightly below estimates but still strong. If it would have come in real hot and much higher bears would have pointed to fanning the inflation flames even further.

This mindset of “bad-news-could-be-good-news” is helping to keep the stock market at or near all-time highs. If economic data somewhat disappoints it means the Fed stay dovish and accommodative for longer.

Fundamental analysis

That might be important to keep in mind as April data starting this week is expected to be extremely good. The April Employment Report is due next Friday and with upper-end of Wall Street estimates look for upwards of +1 million new jobs being added. Other key April data next week includes the ISM Manufacturing Index on Monday, and the ISM Non-Manufacturing Index on Wednesday.

employment

If the data comes in better than expected the bears will win the nearby battle and have the upper hand when talking higher inflation and the Fed perhaps tightening sooner than anticipated. So this week could be a bit tricky whereas “disappointing-data” could actually be digested as a win for the bulls and “strong data” a win for the bears.

The earnings calendar is packed again next week with big names including Activision Blizzard, Adidas, AllState, Cerner, Cigna, CVS, Dominion Energy, Enbridge, Etsy, Hilton Worldwide, Moderna, Monster Beverage, Nintendo, PayPal, Peloton, Pfizer, Rocket Companies, Square, TMobile, Wayfair, and Zoetis.

COVID-19

Checking in on U.S. progress against Covid-19, the number of adults that have received at least one dose is around 60%-65%, depending on the source. Global cases continue to rise led by India, where new infections have been hitting new record highs every day for weeks now. The country reported a staggering 380k new infections and 3,645 new deaths on Thursday while less than 10% of the population has been vaccinated.

Bottom line, the global restart will not be synchronized like many bulls had hoped would be the case and global growth may continue to struggle. At the moment the U.S. market doesn’t seem to care. It will be interesting to see if increasing inflation and continued global headwinds will eventually come home to roost.

SP500 technical analysis

SP500 earnings season

Earnings season can bring volatility to the stock market. At the beginning of May, cycles turn to the downside. Note, this is only a timing tool and it never shows the amplitude or strength of the move. When cycles are topping, it means we can expect a move down or choppy trading. This is it.

But relying on cycles only is not a good idea. Insider Accumulation Index shows bearish divergence on a daily chart. At the same time, Advanced Decline Line is still strong. The key resistance is around 4250 at the moment. I believe earning season can bring a profit booking to the stock market. If that happens, watch 4000 – 39500. It was a massive resistance and now it might turn into support. Intermarket Forecast is neutral. But if it turns to the downside, we will finally see a pullback in SP500.

For a look at all of today’s economic events, check out our economic calendar.

Why Shares Of Peloton Are Down By 8% Today?

Peloton Video 19.04.21.

Peloton Stock Dives After CPSC Warns Consumers Not To Use The Peloton Tread+

Shares of Peloton found themselves under material pressure after Consumer Product Safety Commission (CPSC)  warned consumers about the danger of Peloton Tread+ treadmill.

CPSC stated that the warning came after the agency found one death and dozens of incidents of children being sucked beneath the exercise machine.

Peloton called CPSC press release “inaccurate and misleading”. The company stated: “There is no reason to stop using the Tread+, as long as all warnings and safety instructions are followed”.

The market is clearly worried about CPSC warning as shares of Peloton are down by more than 8% in today’s trading sessions. Peloton stock has been under pressure since the beginning of this year as investors and traders exited their positions in high-flying stocks which were boosted by the pandemic. The stock is down by roughly 30% year-to-date, and CPSC warning has served as an additional bearish catalyst for Peloton.

What’s Next For Peloton?

CPSC press release states that consumers should “stop using the Peloton Tread+ if there are small children or pets at home”, but the warning may also have a negative impact on demand from potential customers who have no kids or pets. The market is also worried that some customers may want to return the product after the warnings.

Currently, analysts expect that Peloton will report profit of $0.31 per share in 2021 and $0.71 per share in 2022.  The stock remains very expensive even after the major pullback this year, and it trades at 150 forward P/E for 2022.

Analyst estimates have been declining in recent months, and CPSC warning will likely serve as a catalyst for another downside revision of earnings estimates. Declining earnings estimates may present a serious problem for a high-growth stock like Peloton so the company’s response to the current crisis will be very important for the fate of its shares.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Market Wrap and Forecast for Monday

January’s Non-Farm Payrolls report added 49,000 new jobs while the unemployment rate fell from 6.7% to 6.3%. December jobs were revised sharply lower, continuing a bleak employment scenario as the Western world works through the last stages of the winter’s second pandemic wave. The equity market yawned and bonds sold off after the news, squaring positions into the weekend so that short-term options market makers get paid.

Ford vs. Tesla

SP-500 Volatility Index (VIX) fell to the lowest low since early December. GameStop Inc. (GME) shareholders declared their loyalty in a widely read Reuters article, ready to become the bagholders of a new generation. Ford Motor Co. (F) CEO Jim Farley (no relation) declared the new Mustang Mach-E will compete successfully with Tesla Inc.’s (TSLA) Model Y, forgetting that brand is everything in the third decade of the new millennium.

Snap Inc. (SNAP) recovered after a 9% post-earnings decline, lifting to an all-time high. Fitness juggernaut Peloton Interactive Inc. (PTON) fell into the 140s despite beating top and bottom line estimates and raising first quarter guidance. The company has to compete with real fitness centers in coming quarters, lowering expectations about their vertical growth trajectory. Wynn Resorts Ltd. (WYNN) hit an 11-month high despite a 58.5% year-over-year revenue decline, offering shareholders an opportunity to get out with their capital still intact.

Heading into Monday

Fourth quarter earnings season draws to a close next week, with reports from Dow components Cisco Systems Inc. (CSCO) and Walt Disney Co. (DIS) as well as Twitter Inc. (TWTR), and General Motors Co. (GM). Disney is trading near an all-time high even though their wildly successful streaming service has done little to replace income lost from empty movie theaters, dry-docked cruise ships, and socially-distanced theme parks.

Sky’s the limit for U.S. equities, at least until the Biden administration hits a brick wall with their massive stimulus bull. At least to the point, left-leaning politicians have avoided most of the logistical mistakes made by the Obama administration in 2009.  The Republican Party is trying to rebrand itself after the departure of Donald Trump and their infighting has allowed the Democratic-controlled Congress to move aggressively on economic policy.

For a look at all of today’s economic events, check out our economic calendar.

Peloton Breaks Out After Key Acquisition

Peloton Interactive Inc. (PTON) has broken out to an all-time high after announcing the acquisition of fitness equipment manufacturer Precor, in a transaction valued at $420 million.  The at-home workout juggernaut has struggled to keep up with skyrocketing demand in 2020 and the acquisition should ease considerable backlogs. It also gives one of the market’s hottest companies the sophisticated tools it needs to research and manufacture new products.

Surging Momentum

The stock has rallied nearly every session in the last two weeks, returning to October resistance at 139.75 on Thursday of last week. It ticked up to a new high on Monday and rallied another 10% in Tuesday’s pre-market, in reaction to last night’s press release. Accumulation readings have surged to new highs as well, setting the stage for a bull run that could last well into the first quarter of 2021 and lift the stock above 200.

Telsey Advisory Group analyst Dana Telsey raised her target to $180 this morning, pounding the table while noting the acquisition will help Peloton “increase its annual sales, start manufacturing its products in the U.S.A., accelerate production and shorten lead times, increase the flexibility of its manufacturing capabilities, onboard around 100 new research and development employees, and gain access to Precor’s commercial customers, enabling the ability to cross sell.”

Wall Street and Technical Outlook

Wall Street consensus was highly bullish ahead of the news, which should generate a wave of fresh upgrades and higher price targets. Peloton is now rated as a ‘Strong Buy’ based upon 20 ‘Buy’, 3 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $110 to a Street-high $185 while the stock has opened Tuesday’s U.S. session about $13 above the median $146 target and $25 below the high target.

Peloton topped out in October and pulled back in a rounded correction that found support after slicing through the 50-day moving average in November. It spent more than a month reestablishing support that that level and turned sharply higher on Dec. 10. Tuesday’s breakout gap will be hard to fill, given rapidly-increasing momentum, but this is an expensive stock to own, with a market cap higher than one-third of all Nasdaq-100 components.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.