Shares of Peloton Interactive Inc. got a lift Monday, after KeyBanc analyst Edward Yruma said the recent selloff presented a “compelling” opportunity for long-term investors to buy, as recent Bike price cuts should offset a slower Tread ramp.
The stock (NAS:PTON) rose 1.2% in midday trading Monday. It has bounced 5.9% since closing at a 13-month closing low of $82.35 on Oct. 4, but was still trading at almost half the record closing price of $167.42 on Jan. 13.
The weakness this year resulted from investor concerns over the impact of the lifting of COVID-19-related restrictions, such as gym reopenings; the backlash from the company’s response to a recall of treadmills, after reports of injuries and a death; and increasing competition.
After a brief bounce over the summer, the stock’s selloff resumed in late August, after the company reported a much wider-than-expected quarterly loss, as cost of revenue more than doubled to outpace revenue growth of 35%.
KeyBanc’s Yruma reiterated the overweight rating he’s had on the stock since a month after the company went public in September 2019 . He cut his price target by 16%, to $155 from $185, but the lower target still implied 77.8% upside from current levels.
“While we acknowledge [near-term] concerns about reopening and Tread, we think recent weakness presents a compelling [long-term] entry opportunity,” Yruma wrote in a note to clients. “
He said his research shows that Peloton is taking “more aggressive steps” in trying to explain to potential customers why its Tread product and the whole-body workout that goes with it is better than conventional treadmills.
Meanwhile, Yruma said his field work has shown there has been a “strong response” to the reduced prices for Bike products, which suggests the “offensive move” to lower prices should help Peloton maintain its outsized share of the at-home spin bike market.
He also believes Peloton has a “significant opportunity” to benefit from revenue streams from other devices, such as a rowing machine, and other subscriptions, as well as apparel.
The stock has shed 29.1% over the past 12 months, while the SPDR Consumer Discretionary Select Sector exchange-traded fund (PSE:XLY) has rallied 19.5% and the S&P 500 index (S&P:SPX) has climbed 26.5%.