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Why Peloton (PTON) Shares Are Falling Today

StockStory - Wed Apr 10, 11:24AM CDT

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What Happened:

Shares of exercise equipment company Peloton (NASDAQ:PTON) fell 8% in the morning session after as major indices pulled back and yields soared after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of March 2024 that came in slightly hotter than expected at 3.5% year on year (versus analysts expectations for 3.4%). According to the report, shelter and gasoline prices contributed more than half of the monthly increase in the index. 

The inflation print, while only slightly above expectations, is adding to fears that the Fed could delay rate cut plans in 2024. Following the inflation report, consensus estimate was for two rate cuts in 2024 (down from the previous consensus for three rate cuts). 

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 a little volatile and over the last year have had 65 moves greater than 5%. 

The previous big move we wrote about was 8 days ago, when the company dropped 6.2% as 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 were 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. 

Peloton is down 36.9% since the beginning of the year, and at $3.68 per share it is trading 68% below its 52-week high of $11.49 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 $142.66.

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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