Should I buy Peloton stock?

Peloton Interactive Inc (NASDAQ:PTON) stock fell heavily on Friday. Is this a golden opportunity for UK investors to buy or a sign to cycle away?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Concentrated young african american black guy sitting on heated floor at modern coffee table in living room, looking at laptop screen

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

US-listed Peloton (NASDAQ:PTON) stock fell heavily last week. Is this a great opportunity for UK investors like me to buy a lockdown winner from across the pond? Here’s my take.

Why is Peloton stock falling?

One reason is a slowdown in revenue growth. As Covid-19 restrictions have lifted, Peloton has struggled to shift as many of its premium exercise bikes as it did in 2020. Accordingly, the firm now believes Q1 sales will come in at $800m. That’s a significant miss from the $1bn expected by analysts.  

On top of this, the company has also had to deal with the fallout from the tragic death of a child who was pulled underneath one of its treadmills. In response, Peloton recalled its Tread and Tread+ products in the US. A similar recall happened in the UK after the running machines’ consoles developed a nasty habit of falling off. All this has added to company costs and potentially hurt its reputation. Investors are sweating. 

Will this continue?

Lacking a crystal ball, no one knows what will happen. However,  we do know Peloton intends to lower the cost of its once-highly-coveted bike for a second time by 20%.

While another reduction in price might attract those initially put off by the cost, it will also cause a near-term impact on earnings. That’s understandably frustrating for those already holding Peloton stock since the business only announced its first profitable quarter as a listed company in September last year.

Given the market’s obsession with what happens over the next few months rather than years, I suspect Peloton could be in for a rough ride for the rest of 2021. Bear in mind too that the S&P 500 could conceivably let off steam soon.

No matter. There are a number of other ways I can tap into the keep fit/wellness industry without buying Peloton stock. 

Better buys?

I’d be more tempted to buy shares in Gym Group. Back in May, it announced that trading since being allowed to reopen was outperforming its own expectations. Membership numbers have bounced back, suggesting that the social aspect of exercise is still important to fitness fanatics.

Another alternative would be retailer Halfords. Like Peloton, the UK company was a huge beneficiary of multiple UK lockdowns as people sought to stay fit (and sane) by getting outside on their bikes. Despite rising 122% in value over the last year, the shares still change hands for just 12 times earnings. Then again, one drawback is that riders tend not to replace their durable companions every few months. 

A third option is nutrition firm Science in Sport. Its share price has climbed almost 150% since last August. However, its small-cap status makes the stock potentially very volatile. Competition is also fierce. I think this is arguably the riskiest option of the three.

Hard pass

The fall in Peloton stock isn’t a complete surprise. We’ve seen a few UK lockdown winners drop in value as investors have piled back into battered value plays. 

The lack of consistent profits, however, is more worrying for me. Aside from aesthetics and tech, I’m still struggling to justify buying one of its machines when cheaper options still do the job. If I wouldn’t buy as a consumer, why would I buy as an investor? 

For now, Peloton stock is a hard pass for me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Peloton Interactive. The Motley Fool UK has recommended The Gym Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

This dividend stock’s yielding 5.5% but its directors have sold nearly 15m shares this month!

Our writer takes a closer look at an AIM-listed dividend stock. But despite its impressive yield, some of its directors…

Read more »

Woman using laptop and working from home
Investing Articles

Should PayPal be on my list of shares to buy?

Is a 9% free cash flow yield from a growing business with a strong balance sheet enough to get a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

1 bit of Warren Buffett advice I’m ignoring

Warren Buffett's take on buying individual shares may surprise some people. But there's a logic to it. What's our writer's…

Read more »

Close-up as a woman counts out modern British banknotes.
Investing Articles

£20,000 in savings? Here’s how it could be used to target passive income of £913 each month

Christopher Ruane illustrates the explosive passive income potential of buying dividend shares, using a £20k lump sum as an example.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

3 growth stocks I’ve bought for the ‘AI agent’ revolution

Edward Sheldon sees AI agents as one of the most exciting themes in the stock market. Here are three growth…

Read more »

ISA Individual Savings Account
Investing Articles

Putting these 4 in a Stocks and Shares ISA gives exposure to over 1,000 companies at a 10.6% discount!

With increased global uncertainty on the rise, our writer thinks it’s a good time for anyone with a Stocks and…

Read more »

UK supporters with flag
Investing Articles

8.5% dividend yield! Should investors consider buying this high-income FTSE stock today?

This FTSE renewable energy giant's fallen out of fashion, but it now offers one of the highest sustainable dividend yields…

Read more »

Night Takeoff Of The American Space Shuttle
Investing Articles

Is this penny stock on track for an explosive recovery in 2025?

This penny stock could almost triple its earnings by 2026 if it successfully executes a turnaround strategy, potentially sending its…

Read more »