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Peloton Stock: Ready to Row Higher?

Shares of Peloton (PTON) have been demolished since peaking out in December of 2020. The stock lost more than 90% of its value from peak to trough, as the pandemic pull-forward in demand led to a nasty hangover after lockdowns were lifted.

These days, the masks are off, and people have returned to their gyms. Despite price cuts and intriguing new offerings, Peloton has shown signs that it's continuing to suffer from the post-lockdown hangover. People are out of the house, and they're probably in no rush to return home.

Eventually, demand will normalize, and Peloton could find its shares pedaling higher again. Indeed, rumors of potential takeover interest have powered past moves higher. However, I still think the exercise equipment maker can sustain a move higher under its own feet.

You see, Peloton isn't just a maker of stationary bikes. It's also a media company with a pretty sticky userbase. Further, the company has gotten into other product categories, including clothing, treadmills, and, most recently, rowing machines.

On Friday, shares of PTON surged more than 16% on the tease of the firm's much-anticipated rowing machine. Undoubtedly, Peloton is expanding its roster of exercise equipment. Once post-pandemic demand for at-home equipment normalizes, I do view Peloton as an intriguing contrarian play.

After so much damage in the rear-view mirror, I remain bullish on the stock. However, a potential recession could further weigh on the demand for big-ticket discretionary goods for a while longer.

Can Peloton's Rowing Machine Row It Out of Hot Water?

Peloton's big reveal was met with much applause from investors. Despite the big relief bounce, Peloton stock remains a country mile away from its highs. Unfortunately, shares of the $5.27 billion firm will probably never eclipse $150 over this decade. Still, that doesn't mean the stock can't be a solid performer from here after its brutal valuation reset.

The rowing machine is the latest addition to its offerings. However, it's hard to imagine anyone other than the most devoted Peloton fan who's itching to place an order here. Many investors are worried about a hard landing for the economy as a result of Federal Reserve rate hikes. If we are headed for a downturn, the last thing on anyone's mind is to buy another expensive piece of exercise equipment.

There's no denying Peloton's economic sensitivity. However, with a lot of built-up savings and a possibility of a less-severe-than-expected recession, there's a chance that PTON stock may have priced in a bear-case scenario.

Peloton's product expansion is encouraging, even though the timing may be questionable. With such a low bar set ahead of it, perhaps Peloton stock isn't the worst stock to go bottom fishing in these days.

Though the rower is unlikely to mark a bottom in the stock here, I am a fan of the risk/reward from a longer-term perspective. Peloton has a plan, and coming out of the next downturn is when the discretionary may get some momentum back.

Another Weak Quarter Could Weigh for a While Longer

After another quarterly disappointment, it's hard to find any reason to back Peloton on its dip. The company clocked in a wider per-share loss of $2.27 versus $0.84 for the third quarter. Supply-chain constraints and inflation's impact weighed heavily on the numbers.

Further, Peloton still seems to be suffering from weak demand, thanks to the pandemic pull-forward. Undoubtedly, the great 2020 pandemic pull-forward could weigh down many more quarters to come. Revenue fell nearly 24% to $964 million, on the low-end of management's original guidance of $0.95-1 billion.

Despite the weakness in hardware, subscription sales rose 55%, beating expectations. Clearly, the company has a lot of devoted fans that aren't about to cancel their memberships anytime soon. The real challenge for Peloton is to upsell such customers as it continues building out its hardware offering.

Pending a disastrous launch like that suffered by the Tread, Peloton's rowing machine should help reignite some interest in the fallen pandemic star. In any case, I don't think investors will be in a rush to bottom-fish in the stock quite yet, as rate hikes begin to take a step out of economic growth.

Wall Street's Take

Turning to Wall Street, PTON stock comes in as a Moderate Buy. Out of 26 analyst ratings, there are 15 Buys, 10 Holds, and one Sell recommendation.

The average Peloton price target is $22.96, implying upside potential of 46.8%. Analyst price targets range from a low of $11.00 per share to a high of $40.00 per share.

The Bottom Line on Peloton Stock

Peloton hasn't had much going for it lately. The release of the rower should help reduce the impact of falling revenues. Still, until the economy can flex its muscles, I don't see PTON stock heading much higher anytime soon.

In any case, look for the company to continue building new products and innovations. Perhaps a resistance-training product is next? Such innovations will likely be in high demand again once the economy is ready for its next expansionary cycle.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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