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Peloton Interactive Inc(PTON-Q)

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Why Peloton (PTON) Stock Is Falling Today

StockStory - Tue Apr 2, 3:06PM CDT

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What Happened:

Shares of exercise equipment company Peloton (NASDAQ:PTON) fell 6.2% in the morning session after the major indices pulled back with the Nasdaq down 1.1%, while the Dow and S&P 500 fell 0.9% and 0.8% respectively. Bond yields increased as traders lowered expectations that the Federal Reserve would cut interest rates in June 2024. Also, it's likely investors are taking profits to wrap up the earnings season. 

Macro data remained mixed with the PCE (personal consumption expenditure - the Fed's favourite inflation gauge) price index coming in inline with market's expectations at 2.5% for the month of February 2024 as reported on March 29, 2024. The data showed that inflation remained sticky. With inflation yet to come back down to the Fed's 2% target, the data is likely to raise renewed skittishness about the Fed's pace of rate cuts in 2024. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Peloton? Access our full analysis report here, it's free.

What is the market telling us:

Peloton's shares are very volatile and over the last year have had 63 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 2 months ago, when the stock dropped 20.8% on the news that the company reported second-quarter results with EPS falling below Wall Street's expectation, though revenue beat by a narrow margin. However, revenue guidance for next quarter missed Wall Street's estimates, with management highlighting that "our biggest challenge continues to be growth, at scale." 

In addition, while the company previously expected to break even on a free cash flow basis in fiscal year 2024, it now expects to fall short of the goal and only generate positive free cash flow in Q4 (vs. $(74) million in 4Q23). Other challenges include the failure of initiatives such as the premium co-branded Bike experiment with the University of Michigan, which resulted in fewer sales than anticipated, and shortcomings in customer service during the holiday season, prompting a reboot. Overall, this was a mediocre quarter for Peloton.

Peloton is down 30.2% since the beginning of the year, and at $4.07 per share it is trading 65.3% below its 52-week high of $11.73 from April 2023. Investors who bought $1,000 worth of Peloton's shares at the IPO in September 2019 would now be looking at an investment worth $157.61.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

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