It’s astonishing to consider how drastically sentiment can change on Wall Street. During the onset of the Covid-19 pandemic, fitness equipment maker Peloton Interactive (NASDAQ:PTON) was heavily favored. Lately, though, PTON stock has been consigned to the proverbial doghouse.
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There are a number of reasons for this. For one thing, lockdown restrictions were lifted as Covid-19 vaccines became widely available. As a result, the demand for expensive home-gym equipment waned.
Also, in 2021 one child was badly injured and another one was tragically killed due to accidents involving Peloton products. After these events and more than 70 reported incidents, the company initiated a recall of its Peloton Tread+ treadmill, model number TR01.
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Now, Peloton must struggle with a public-relations nightmare. Plus, there are key developments involving an aggressive activist investor, takeover talk and television drama. Yet, as the veritable soap opera surrounding Peloton unfolds, there just might be a happy ending for investors with saint-like patience.
A Closer Look at PTON Stock
It fun, sometimes, to reminisce about the good old days. For Peloton’s long-term shareholders, those days spanned March through December of 2020, when the share price soared from $20 to $170.
The following year was much less charitable to Peloton’s stakeholders, however. Painfully and relentlessly, PTON stock fell below $100 in April of 2021, and then below $50 in November.
Fast-forward to late January 2022, and the stock was trading at an eye-watering $26. There’s really no point in trying to find a floor here, as there are no meaningful support levels.
The upcoming early-February quarterly earnings event may provide some much-needed relief for Peloton’s investors. At this point, with so little left to lose, a pre-earnings share purchase could actually make sense.
An Important Precipice
With so much to consider regarding Peloton lately, analysts on Wall Street have varying opinions about the company’s future prospects.
On one side of the sentiment spectrum lies BMO Capital Markets, which issued an “underweight” rating on PTON stock and slashed its price target from $25 to $24.
The company “lies at the edge of an important precipice; a material strategic reset is likely required to stem meaningful cash-burn and faltering demand,” BMO Capital Markets wrote about Peloton.
I stark contrast, analysts at Stifel actually upgraded Peloton shares from “hold” to “buy.” However, they also reduced their price target from $56 to $40.
“We believe shares have over corrected relative to the underlying business conditions and see a favorable risk/reward setup ahead,” the Stifel analysts wrote.
Indeed, they may have over-corrected. I’ve witnessed folks on social media recommending selling PTON stock simply because a character on the television program Billions had a heart attack while riding a Peloton stationary bicycle.
This is fiction, folks. It doesn’t make sense to punish Peloton for a script writer’s creativity, does it?
Apparently, in a separate fictitious incident, a Sex and the City character also suffered a heart attack while riding a Peloton stationary bike. Now, if that’s not a contrarian indicator that favors PTON stock, I don’t know what would be.
Yet, that’s not the only drama that’s been going on with Peloton lately. Reportedly, activist-investor firm Blackwells Capital wants Peloton CEO John Foley to be fired, and wants the company to consider selling itself.
It’s an audacious request/demand, as Blackwells’ stake in Peloton is less than 5%. Nonetheless, Blackwells’ CIO Jason Aintabi’s open letter pulls no punches:
“There can be no reasonable doubt that Mr. Foley is not suited to be Peloton’s CEO. And so, you must remove and replace Mr. Foley to be faithful to your obligations to shareholders. At the same time, you should explore whether there is a better owner for Peloton, which we fervently believe there is.”
Apparently, Fox Business News reporter Charles Gasparino doesn’t envision robust prospects for a near-term takeover of Peloton.
“Private equity is snooping around @onepeloton but not hearing any resounding interest… Wouldnt shocked by a deal but it seems much less than 50 50,” Gasparino mused.
Fair enough, but 50/50 isn’t the worst odds I’ve ever seen. Besides, it’s probably fair to assume that PTON stock would increase in value if a takeover deal is announced.
The Bottom Line
Like a Peloton bike, it’s impossible to guarantee safety when it comes to PTON stock. That being said, it’s important for sensible investors to ignore what’s happening in fictional television shows, and focus on reality.
And the reality is, everybody and his uncle hates Peloton and it might be an attractive takeover target.
Hence, there may be an opportunity to exercise your right to own PTON stock, a bold bottom-fishing bet for risk-tolerant speculators.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
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