Peloton Interactive Inc.’s shares sold off Wednesday after Wedbush analyst James Hardiman stepped down from his long-standing bullish stance and established uncertainty about the home fitness company’s ability to navigate a more competitive world after the pandemic.
Hardiman lowered his rating to neutral after outperforming since a prepandemic in January 2020. He cut his stock price target to $ 115, down 4.0% from Tuesday’s closing price of $ 119.85 from $ 130.
The PTON share lost -0.38% in pre-market trading by 2.8%.
“[Peloton] The next stage in its growth story is now beginning, which in a post-pandemic era requires the company to generate its own momentum through clever marketing and compelling new products, as consumers not only have the full capacity of personal contacts, training options are available again, but also an unprecedented and growing list of digital / home options, ”Hardiman wrote in a note to customers.
With that in mind, Hardiman said it “makes sense” to keep the stock neutral until he has a better idea of underlying demand growth and has more transparency about what investors are willing to pay for that growth.
What also worries Hardiman is that a number of engagement data he tracks on various social media platforms suggests that excitement for the product is waning.
“[T]he and / and growth [in engagement] The June quarter saw a significant slowdown, which shouldn’t come as a surprise given the seasonal and reopening headwinds, but still appears to mark a turning point for a company that has consistently defied gravity since going public and provides evidence that the law of the big numbers is finally catching up, ”wrote Hardiman.
The peloton went public in September 2019, with the stock closing its first day 11% below its $ 29 price and ending 2019 at $ 28.49. But then the COVID-19 pandemic hit and the stock surged 434% in 2020 as gym closings increased demand for home exercise equipment.
However, with COVID-19 restrictions lifted so far this year, Peloton stock lost 21.0% through Tuesday, while exchange-traded SPDR Consumer Discretionary Select Sector fund XLY rose -1.20% and the S&P 500- Index SPX, -0.35% rose 16.3%.
Peloton’s stock was also weighed down in 2021 by a public relations bug that saw the company initially deny a request from the U.S. Consumer Product Safety Commission, its Tread + treadmills after the death of a child, and more than 29 reports on it Recall injuries. The company eventually issued a voluntary recall of the treadmills and Chief Executive John Foley apologized, saying the company “made a mistake” by waiting this long.
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The stock lost up to 45.5% for the year when it closed at $ 82.62 on May 5, but has risen 45.1% since then, closing at $ 119.85 on Tuesday.
“While we believed the Street overreacted to the business impact of the Tread + security issues (leaving the stock at the low $ 80), the snapback risks the potential impact of its growth prospects of the new thread is underestimated. which has always been an important part of our bull thesis and will therefore be the focus of our research during the upcoming (hopefully) relaunch, ”wrote Hardiman.
He said the next phase of growth beyond Peloton’s core business could come in the form of new products, be it the new Tread product or the “long-awaited” rowing machine.