Why Peloton Interactive Has Fallen This Week

What happened

Not even an activist investor calling on Peloton Interactive (NASDAQ:PTON) to fire its CEO and sell the company was enough to stop the connected-fitness guru’s stock from falling this week. Shares of the treadmill and stationary exercise-bike maker are down 11.6% from where they closed last Friday, according to data from S&P Global Market Intelligence, as there apparently aren’t any takers who want to buy the company because it’s in such disarray.

So what

It’s been one bad-news cycle after another for Peloton after it reported a fiscal second-quarter earnings update that showed demand for its exercise equipment has been quickly evaporating. Sales growth has dramatically slowed, and if these negative trends on engagement continue, that will be on a downward trend, too.

It was also reported Peloton was shutting down production because it couldn’t find anyone who wanted to buy their machines in sufficient quantities. While the company denied that report, it did say it was considering mass firings, something it had previously said would only be a last-resort option.

Person running on connected treadmill.

Image source: Peloton Interactive.

Then came word that hedge-fund Blackwells Capital, which has less than a 5% stake in Peloton, wants CEO John Foley fired and the company put up for sale as it would be an attractive acquisition target. Maybe some company would be interested, but according to Fox Business News, no one was really interested. 

Reporter Charles Gasparino tweeted: “Firms believe stock is still over-valued, management is a mess that [would] take too much to fix even in private hands. Wouldnt shocked by a deal but it seems much less than 50 50.”

Peloton also gave out mixed signals of its own, making a lot of hay about having cut prices by up to $400 on some of its equipment to help shed the “luxury” label it carries, but then raising the cost of delivery and setup by $250 to $350.

Now what

Peloton Interactive increasingly looks like it was simply a beneficiary of the pandemic that can’t stand up to the competitive pressure of out-of-home fitness and entertainment opportunities. What once looked like a high-flying growth stock with potential to lead the pack, now looks more like a one-and-done that might not survive very long as a publicly traded company once its valuation is more in line with its growth prospects.

At a current price of around $24 a share, it may quickly be approaching that level. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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