Peloton Stock May Finally Be a Value Play

Connected home fitness equipment maker and platform Peloton NASDAQ: PTON stock has been a nasty rollercoaster ride for investors. The popular connected fitness company bounced off $17.70 COVID lows to peak at $171.09 before plunging on the reopening trend back into the $30s. The Company has yet to turn a profit and further issued downside guidance in its fiscal Q1 2022 earnings release, which also happened to miss estimates by (-$0.11). Needless to say, investors have been frazzled as the news continues to be negative, including the HBO Max NASDAQ: DISCA cringeworthy extension of Sex and the City’s initial episode showing a main character Mr. Big having a fatal heart attack after his Peloton bike workout causing shares to collapse into the $30s the next morning. While connected fitness is a part of the new normal, it apparently hasn’t completely replaced the benefits of going to a live gym. The Company continues to see softer demand which is causing a reversion in sales as well as the stock price. However, Peloton is still growing, just not as fast. Prudent investors looking for exposure to a leading connected fitness play can watch for opportunistic pullbacks in shares of Peloton to build a position.

Fiscal Q1 2022 Earnings Release

On Nov. 4, 2021, Peloton released fiscal Q1 2022 results for the quarter ending in September 2021. The Company reported an earnings per share (EPS) loss of (-$1.25), excluding non-recurring items, versus consensus analyst estimates for a loss of (-$1.14), a (-$0.11) miss. Revenues grew 6.2% year-over-year (YoY) to $805.2 million but missed the $808.87 million consensus analyst expectations. Connected fitness subscriptions rose 87% to 2.49 million and paid Digital Subscriptions rose 74% to 887,000 for a total membership of over 6.2 million customers.

Downside Guidance

Peloton lowered its revenue guidance for fiscal Q2 2022 expecting between $1.10 billion to $1.20 billion versus $1.49 billion consensus analyst estimates. The Company lowered its fiscal 2022 full-year revenue guidance to come in between $4.40 billion to $4.80 billion versus $5.35 billion consensus analyst estimates.

Conference Call Takeaways

Peloton CEO John Foley set the bearish tone, “As you all well know, stay-at-home and work-from-home orders, coupled with commercial gym closures, drove massive awareness gains for Connected Fitness, accelerating an adoption curve that was already well underway. Given the unprecedented circumstances presented by the global pandemic, we said last quarter that modeling the exit from COVID and the massive growth we saw in fiscal 2021 would be a challenging task, and that has certainly proven to be true. With reduced backlogs, our visibility into our future performance has become more limited. From forecasting consumer demand to accurately predicting logistics costs, our teams have never seen a more complex operating environment in which to guide our expected results this year. As noted in our shareholder letter, we are reducing our guidance for the fiscal year 2022. We have returned to presenting ranges given the uncertainty. The swift timing of these changes since giving our initial guidance in August is not lost on us. As we prepared our previous guidance, we had to make assumptions about consumer behavior coming out of COVID, the impact of our original Bike price reduction, and the cost structure within our Connected Fitness segment, all against the backdrop of a global supply chain crisis. While we have had to manage carefully around many issues, such as component shortages, elevated freight costs, and increased transportation costs, I'm proud of our team who has moved mountains to ensure that we have ample inventory across our portfolio ahead of the holiday season.”

He concluded, “As we have said, summer months have traditionally seen lower engagement levels, and we expect our first quarter to represent the trough quarter for engagement for the fiscal year as it has in every non-COVID year in our history. In the quarter, we continued to aggressively invest in content and new software features for our members. We produced over 2,500 new classes and launched features requested by our members. Examples include subtitles for live classes, redesigned class filters, a reimagined progress tracking feature, and structured workout plans to help keep our members on track. We also welcomed eight terrific new instructors bolstering both our New York and London-based teams. Our new instructors will be teaching in English, German, and Spanish with a focus on running Tread boot camp, strength, walking, outdoor, and stretching. Finally, this quarter featured the addition of 60 new running and cycling phoenix classes, which were taken over 1 million times in the period. Looking ahead, we're about to enter our busiest time of the year. Our inventories are healthy, and our logistics teams are well equipped for the seasonally strong sales period. We have low expected OTDs across our portfolio as we know delivery is greatly appreciated during the holiday and New Year's resolution periods.”

PTON Price Trajectories

Using the rifle charts on monthly and weekly time frames provides a broader view of the landscape for PTON stock. The weekly rifle peaked on its last coil attempt at the $101.42 Fibonacci (fib) level before triggering the daily market structure high (MSH) sell-off on a breakdown under $87.98. The weekly downtrend has a falling 5-period moving average (MA) at $43.08 followed by the 15-period MA at $71.60. The weekly stochastic is smothered at the 3-band with lower Bollinger Bands (BBs) at $9.98. The daily rifle chart is in a downtrend that is starting to flatten out with its flat 5-period MA at $39.48 and 15-period MA at $42.22. The daily market structure low (MSL) buy triggers above $41.46. The daily BBs have been compressing which precedes a larger price move on expansion. The daily stochastic is attempting to break the 20-band higher on a divergence bottom attempt. Prudent investors can look for opportunistic pullback levels at the $33.69 fib, $29.92 fib, $24.54 fib, $21.35 fib, $17.70 fib, and the $13.56 fib level. Upside trajectories range from the $58.37 fib up towards the $76.20 fib level.