Citron Research sent a note to clients warning that Peloton shares may fall to $5 apiece in 2020.
Shares of now pretty infamous exercise equipment company Peloton have been sinking lower this month, after in November just before the holidays they’ve witnessed a 48% bounce. This high-end fitness specialist had a great IPO and broke through it in October. However, this success hasn’t continued in December and most of its failure can be thanked – to a commercial. I guess we’ve all seen it, the commercial where already slender “wife” gets a Christmas present form her husband and she then hisses and puffs through the whole year to become… well, slender.
The commercial was widely criticized for being out of touch and this week, as the shares went down, the research from Citron Research proposed the price of the stock of $5. However, most analysts claim that this is probably not going to happen.
Be it as it may, the Citron Research’s Andrew Left explains this bearish argument by illustrating how weird the stock’s valuation is for a company with that has a subscriber base so tiny it is almost non-existent.
The report, called “Investors Peddling Themselves into Frenzy,” claims Peloton is reminiscent of GoPro and Fitbit, the two companies that were once market leaders in their respective categories of wearable action cameras and fitness trackers. However, ever-growing competition hurt their sales and profits and proved that they were just one-hit wonders.
Citron noted that when you take a closer look into Peloton’s business model, there is nothing that seems special, something that could describe this company as unique or at least somewhat immune to competitive threats.
It says:
“Once you get past management’s grandiose talks, you have a company that sells hardware and software.”
It goes further by saying there is no reason to spend $2300 on a bike (plus the subscription for classes) when there are cheaper and similar versions from the likes of NordicTrack, ProForm, Echelon, Bowflex, etc.
“Competition is so intense that some competitors are even offering to give the exercise bike for free with a digital subscription. Citron believes Peloton’s glory days of hardware sales are in the rear-view mirror.”
Shares of Peloton end the Wednesday trading with the 2.29% plunge and closed on just over $32. However, that’s still above the company’s initial public offering price of $29 from September so it seems Citron’s researchers could be wrong after all.
Speaking at the UBS investment conference this week, Peloton’s CEO and founder John Foley revealed that Peloton expects to gather even more revenue when it starts selling this specific treadmill from the commercial adding that in no way the ad was sexist or intended to hurt anyone’s feelings .
Foley went further by saying that rivals are selling “dopey old treadmills” that wind up becoming nothing more than a “clothes hanger” that’s “dusty.” Exercise enthusiasts, Foley claims, will want Peloton equipment because of all the added services that come with it.
On the other hand, there are some analysts that seem to agree with Peloton being overvalued.
Mark Tepper, president and CEO at Strategic Wealth Partners said:
“The stock is completely overpriced right now. It’s almost trading as if it’s a software or subscription-based company.”
Then again, Peloton has plenty of loyalists, as well. Of the 20 analysts surveyed by Refinitiv on December 6, seven rated the company a “strong buy,” 12 said it was a “moderate buy,” and only one had a “hold” rating. Their average 12-month price target was $32.84 a share.