Peloton Stock Struggling to Keep Up With Its Valuation

Is PTON a buy after dropping more than 45% recently?

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Peloton Interactive Inc (NASDAQ:PTON) is an American exercise equipment and media company. Peloton's primary products are internet-connected stationary bicycles and treadmills that enable monthly subscribers to remotely participate in classes via streaming media. PTON’s content is accessible through the Peloton Bike, Peloton Tread, Peloton Bike+, and Peloton App, which allows access to fitness classes on any iOS or Android device, Apple TV, Fire TV, Roku TVs, and Chromecast and Android TV. Peloton instructors teach classes across a variety of fitness and wellness disciplines.

Peloton stock has decreased about 25% in price year-over-year and is trading back near its annual lows at the $80.50 level, touched in early May. Additionally, shares of PTON have fallen 45% year-to-date with recent pressure at the 10-day moving average guiding shares lower. 

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From a fundamental point of view, Peloton is still overvalued, even after losing more than half its valuation since January. PTON currently has a large market cap of $31.08 billion, despite being unprofitable overall. Peloton stock also trades at a price-sales ratio of 7.56, which is surprisingly high given its strong revenue growth over the course of the Covid-19 pandemic.

Most notably, Peloton's revenues have increased 120% since fiscal 2020 and are up 825% since fiscal 2018. However, the fitness company’s bottom-line growth has been remained inconsistent throughout the years and that is reflected in PTON's recent negative earnings trend. Peloton reported earnings of $0.09 per share back in Q3 of 2020 and, subsequently, has reported a drop in earnings quarter after quarter since. Overall, Peloton could still have considerable downside potential, with the company’s sales and earnings likely having peaked during the pandemic.

 

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