Shares in exercise equipment maker Peloton (NASDAQ: PTON), which have underperformed over the last year, have had a huge rebound this month. This time last week, Peloton’s share price was below $25. Today however, it’s at $39.
So what’s going on here? And should I buy the beaten-down growth stock now to capitalise on the upward momentum?
Why Peloton’s share price is soaring
In my view, there are a number of reasons Peloton’s share price has spiked recently. One is that there has been a change of CEO.
On 8 February, the company announced that Barry McCarthy, who has held senior leadership roles at Spotify and Netflix, has been appointed CEO and president, effective 9 February.
Peloton co-founder John Foley, who was previously the CEO, will now become executive chair. Investors were happy with the decision to replace Foley as CEO, as he has made a number of sub-optimal decisions in relation to product, pricing, demand, and capital allocation in the recent past.
Another reason Peloton’s share price has surged is that the company announced that it would be taking a series of steps to position the business for long-term growth and establish a clear path to consistent profitability.
These steps will see it cut 2,800 jobs and reduce its planned capital expenditures in 2022 by approximately $150m. It believes its actions can deliver $800m in annual run-rate cost savings.
Takeover speculation has also fueled the share price recently. In the last week, there’s been rumours that Peloton could be acquired by a larger company. Apple and Amazon are two companies that have been mentioned.
I personally don’t think Apple would be interested in Peloton. However, a deal could work for Amazon. It has the logistics network in place to deliver the exercise equipment, and could stream the content through Prime.
Finally, I believe we’ve seen a bit of a ‘short squeeze’ over the last week. Data from Nasdaq shows that in January, short interest here was above 10%. I think a bit of buying from investors has forced some of the short sellers to close their positions, which has pushed the share price higher.
Should I buy Peloton stock now?
As for whether I’d buy Peloton stock for my portfolio today, I’m not convinced the risk/reward proposition is favourable at present.
I do think there’s a market for Peloton’s premium exercise products. And I believe the company is heading in the right direction now it has replaced its CEO and announced cost-saving measures.
However, to my mind, there’s a lot of uncertainty in relation to future growth. Ultimately, it’s hard to know what kind of growth Peloton is capable of generating in a post-Covid world.
Another concern for me is competition. Not only is Peloton up against other similar work-out-from-home products, such as Lululemon’s Mirror, but it is also facing competition from gyms and exercise studios now that the world has reopened.
Given the uncertainty over future growth, I’m going to leave Peloton stock on my watchlist for now. All things considered, I think there are better stocks to buy at the moment.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares in Amazon and Apple. The Motley Fool UK has recommended Amazon, Apple, Peloton Interactive, and Spotify Technology. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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