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.
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.
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.
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.