Peloton stock could explode higher by 135% if this happens

Peloton (PTON) stock price has staged a strong comeback in the past few months after it reported better-than-expected financial results and announced management changes. It rebounded to a high of $8.92 last week, its highest swing since July 2023, and 220% higher than the year-to-date low.

Peloton stock recovers amid positive hype

Peloton Interactive is one of the top fallen angels in corporate America. Once worth almost $50 billion, its valuation dropped to nearly $1 billion as concerns about its growth and future continued.

Recently, however, the stock has bounced back, with rumours spreading that it could become an acquisition target. 

Most of the recovery happened after it published encouraging financial results and a new Chief Executive Officer (CEO). 

Peter Stern, the incoming CEO, has been in corporate America for years. He is the president of integrated services at Ford, and before that, he was the head of marketing for Apple. He has worked in Time Warner, where he spent 12 years.

Therefore, analysts are optimistic that he will help to turn Peloton around and make it a more profitable entity. 

The most recent financial results showed that Peloton ended the last quarter with 6.2 million members, a drop from 6.4 million in the same period last year. Its ending paid connected fitness subscriptions dropped by 2% to 2.9 million.

Peloton Interactive’s revenue dropped by 2% to $586 million, while the gross margin increased from 47.9% to 51.8%, helped by higher prices of its equipment like treadmill and bikes.

Most notably, the company is now on a path towards profitability as its net loss moved to $0.9 million from $159 million in the same quarter last year. The management hopes that it will save $200 million by the end of the new fiscal year. It will do that by slashing 400 workers and reducing costs like marketing and contractors.

Therefore, there are signs that the management is now prioritizing profitability over growth, which investors have always demanded.

Read more: Peloton stock mixed after Costco deal, here’s what the market is overlooking

This turnaround strategy mirrors that of Carvana, a company whose stock has surged in the past few years.

Peloton’s advantage is that it has grown to become the biggest player in the connected fitness industry, with a 74% market share. Its other top competitors are the likes of Echelon, iFit, Bowflex, and Tonal. 

More metrics show that its user base is still highly active, with the growth in workouts rising by 63%.

Challenges remain

Peloton still faces challenges ahead. A key issue is that it still makes a lot of money selling its connected devices. 

The most recent results showed that its connected fitness product revenue dropped by 12% to $159 million. This trend will likely continue in the coming years since existing buyers rarely upgrade their equipment.

Therefore, Peloton will likely need to continue growing the number of its subscribers, a trend that is not moving in the right direction. As mentioned, the ending paid connected fitness subscriptions dropped by 2% to $2.9 million. 

The other issue is that, despite the cost savings, its revenue growth is expected to remain weak going forward. Its next revenues are expected to be $660 million, while the annual figure will be $2.47 billion, down by 8.70% from last year. Its revenue in the next financial year is expected to be $2.49 billion, just a small increase. 

The other concern is that Peloton is still an overvalued company that has a forward EV to EBITDA metric of 15, higher than the sector median of 10.14. This means that it will need to continue doing well to justify its valuation.

Analysts are now bullish about Peloton stock. In a note this week, an analyst at Bank of America moved from a sell to a buy, citing it strong cash savings, which will see it making $300 million in 2025. That is a higher number since the management’s guidance was between $240m and $290m. 

Other analysts from the likes of BMO, Bernstein, Truist, and Macquarie have also maintained positive views of the company.

Read more: David Einhorn calls Peloton undervalued—here’s why I’m still not buying

Peloton stock price analysis

PTON chart by TradingView

The daily chart shows that the PTON share price bottomed at $2.72 in May, where it formed a double-bottom pattern. 

It has now moved slightly higher than this pattern’s neckline at $7.15, its highest swing on January 2nd.

Peloton shares have also moved above the 50-day moving average, meaning that bulls are in control.

The Relative Strength Index (RSI) and the MACD indicators have continued rising. Therefore, there are signs that the stock will continue doing well in the coming months. If this happens, the next point to watch will be the psychological point at $10, which is 30% higher than the current level. 

A break above that level will bring the next target at $17.80, its highest point in January 2023, which is 135% higher than the current levels.

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