Peloton Interactive Stock (NASDAQ:PTON): Believe the Hype or Downhill from Here?

Whenever a new IPO hits the market, you can typically expect a volatile first few months of trading. This was true for Peloton Interactive (NASDAQ:PTON), a company that provides a unique and interactive fitness platform. However, after Peloton’s stock price stabilized after taking a beating in the March coronavirus selloff, the company has been rewarding patient investors with nice gains. The company is currently trading around its 52-week highs and has some nice momentum working in its favor.

We know that the global health crisis is affecting certain businesses more than others, and this is particularly true for gyms. We’ve already seen major gym chains like 24 Hour Fitness file for bankruptcy and it’s likely that more of those businesses will follow suit. This is a trend that works directly in Peloton’s favor, and investors are picking up on the fact that gym-goers still want to maintain their fitness without having to risk their health at physical gym locations. Is Peloton stock poised for continued growth or will the stock price fall downhill from here?

Home Workout Trend Here to Stay

If you haven’t already noticed, there are certain stocks that always seem to rise whenever the overall market falls on fears related to a second wave of coronavirus. Peloton is one of those stocks, which is a big reason why you might want to consider adding shares. It remains to be seen if the gym business will ever be the same, and if cases of COVID-19 do end up spiking upwards, Peloton shareholders can expect more gains.

The company is the largest interactive fitness platform in the world that has built up a loyal client base of 2.6 million members. Part of Peloton’s success has to do with the variety of different high-quality remote fitness classes that are available to its subscribers. Traditionally, the words convenience and workout were not associated with each other, but this business is quickly changing that notion. Peloton’s huge selection of remote fitness classes that are available to its subscribers at any time is helping people stay fit from the safety and comfort of their homes.

Solid Earnings Growth

When it comes to investing in companies that recently went public, it is vital to look at the financials before considering an investment. It’s common for newer companies to report net losses as they scale their business and invest in growth, which has been the case for this company thus far. However, Peloton reported impressive earnings growth in May with Q3 revenue growth of 66% and a surprise Q3 Adjusted EBITDA figure of $23.5 million that sent shares higher the day after the earnings release.

Another impressive thing about Peloton’s most recent earnings release is that the company has seen rapid growth in the company’s paid digital subscriber numbers. Connected fitness subscribers, which are people that have purchased a Peloton bike or treadmill, grew 94% while paid digital subscribers grew 64% in Q3. Subscription-based revenue is great because it makes it easier to predict things from a financial and operational standpoint for a company. It remains to be seen if those numbers continue their rapid ascent, but the fact that Peloton’s management team increased its FY2020 guidance tells us that the demand for their products and services is steady.

Niche Market & Strong Brand

Sometimes, the most successful companies become industry-leaders not by offering the cheapest products or services on the market, but by catering to a specific niche market and establishing a strong brand. That is exactly what we see happening with Peloton Interactive, and it’s working in the company’s favor thus far. Buying a Peloton Bike or Peloton Treadmill will set you back $2,245 and $4,295, respectively. These products cater to a premium fitness niche market, but that hasn’t stopped them from selling their products.

By targeting fitness lovers that want premium products and services, Peloton is establishing itself as the leader in interactive fitness. For those that don’t want to buy the bike or treadmill, Peloton still offers an attractive $12.99 per month membership that allows them to access thousands of different on-demand workouts. By offering higher pay for fitness instructors, Peloton attracts some of the brightest trainers in the industry to lead their classes. The bottom line here is that the Peloton brand is strong and providing a unique experience for its niche customers along with attracting people that just want a convenient way to workout at home.

Looking Sharp

Peloton Interactive stock has been on a nice run and there’s a good chance the upward momentum continues in the coming months. This company’s unique products and stellar customer experience make it worth a look should the stock price take a significant dip in the coming months.