Peloton Interactive (PTON 13.30%) Equities outperformed the market on Friday as the stock gained 11% by 1pm ET compared to a 1.2% gain for the US dollar S&P500. That surge only recouped a small portion of the losses for the home fitness specialist. The stock is down over 70% in 2022 even after today’s surge.
Friday’s rally reflected slightly more investor optimism that this seedy stock could recover. However, recent trends in operational dynamics suggest things could be worse for Peloton.
Shares have faltered in recent months as Peloton struggled to boost sales of its practice platforms or memberships for its services. Product sales plummeted 55% in the fourth quarter ended July, the company said in late August. Losses also widened, although management tried to turn positive on results, in part by noting that quarterly cash burn improved to $412 million from about $650 million.
Still, shares had fallen sharply for most of the year, and Peloton’s share price valuation fell notably below the one-off sales in early September. That dip laid the groundwork for a potential rally amid a broader market rally, as witnessed by investors on Friday.
CEO Barry McCarthy and his team hope to reignite revenue growth even as they cut capital expenditures in many areas of the company. That’s a large enough order in most retail environments, but it’s even harder today when many consumers are choosing to avoid spending in areas they prioritized at other stages of the pandemic.
Peloton appears to be heading towards cash flow positive, and that’s undeniably good news for the company. However, the stock is an extremely risky investment opportunity today. Selling trends have not stabilized and losses are significant as we enter the Christmas sales period. Most investors will want to look for better-performing growth stocks to add to their portfolios, despite Peloton’s recent price gains.