Peloton Interactive, Inc. (PTON) operates as an interactive fitness platform in North America and internationally. It offers connected fitness products, which include touchscreen that streams live and on-demand classes. The company currently has more than 6.6 million members.

On September 22, 2022, PTON and UnitedHealthcare, part of UnitedHealth Group (UNH), expanded their partnership to help more people stay fit and active. With this collaboration, nearly 10 million UNH commercial members are expected to become eligible for a yearlong subscription to PTON, which should multiply the company’s consumer count.

However, on September 1, 2022, The Schall Law Firm, a national shareholder rights litigation firm, initiated its investigation on behalf of investors of PTON for violating securities laws.

Over the past month, the stock has lost 25.8% to close the last trading session at $8.59. It has lost 76% year-to-date and 90.9% over the past year.

Here is what could shape PTON’s performance in the near term:

Weak Financials

For the fourth quarter ended June 30, 2022, PTON’s total revenue came in at $678.70 million, down 27.6% year-over-year. The company’s revenue from Connected Fitness Products came in at $295.60 million, down 54.9% year-over-year.

Moreover, its net loss came in at $1.24 billion, up 297.3% year-over-year, while its loss per share came in at $3.68, up 250.5% year-over-year. Also, its adjusted EBITDA came in at a negative $288.70 million, compared to a negative $45.10 million in the year-ago period.

Stretched Valuations

In terms of its forward EV/S, PTON’s 1.43x is 32.2% higher than the industry average of 1.08x. Its forward P/S of 1.00x is 22.5% higher than the industry average of 0.82x. In addition, its forward P/Book of 9.69x is 294.1% higher than the industry average of 2.46x.

Poor Profit Margins

PTON’s trailing-12-month gross profit margin of 19.49% is 46.3% lower than the industry average of 36.32%. Its trailing-12-month negative EBITDA and net income margins of 39.09% and 78.94% are lower than the industry averages of 11.25% and 5.86%, respectively.

Furthermore, PTON’s trailing-12-month ROCE, ROTC, and ROTA of negative 240.96%, 30.47%, and 70.19% compare with the industry averages of 14.98%, 6.91%, and 5.09%, respectively.

POWR Ratings Reflect Bleak Prospects

PTON has an overall rating of F, equating to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

PTON has an F grade for Quality, consistent with its lower-than-industry profit margins. In addition, it has a D grade for Value and Stability, in sync with its higher-than-industry valuation multiples and 24-month beta of 1.66, respectively.

In the 59-stock Consumer Goods industry, PTON is ranked #57. The industry is rated C.

Click here for the additional POWR Ratings for PTON (Growth, Momentum, and Sentiment).

View all the top stocks in the Consumer Goods industry here.

Bottom Line

The company has reported bleak top- and bottom-line performance in the last reported quarter. Moreover, analysts expect its revenue to decline 14.6% year-over-year to $3.06 billion in 2023. Also, its EPS is expected to fall 76.5% per annum for the next five years.

Considering PTON’s stretched valuations and grim profit margins, I think the stock might be best avoided now.

How Does Peloton Interactive, Inc. (PTON) Stack Up Against its Peers?

While PTON has an overall POWR Rating of F, one might consider looking at its industry peers, Mannatech, Incorporated (MTEX), which has an overall A (Strong Buy) rating, and Unilever PLC (UL), PUMA SE (PUMSY), and Kimberly-Clark Corporation (KMB), which have an overall B (Buy) rating.

PTON shares were trading at $8.62 per share on Friday morning, up $0.03 (+0.35%). Year-to-date, PTON has declined -75.89%, versus a -21.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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