PTON

Peloton Stock Is Making a Big Move: Is It a No-Brainer Buy With $100 Right Now?

We're still in the middle of earnings season. While that usually means that management teams give minor updates about financial performance, there are still some market-shaking news stories that some businesses provide shareholders. Peloton Interactive (NASDAQ: PTON) was one of these headline-grabbing companies.

The troubled fitness hardware and software provider is making big moves. Its shares are up 20% in just the past week. Maybe there is some momentum brewing here.

With that being said, is Peloton a no-brainer stock to buy with $100 right now?

Financially out of shape

It's a different quarter, but it's the same story. Once again, Peloton reported financial results that gave investors reason to remain pessimistic about the state of the business.

Driving stronger demand is the key issue here, as has been the case since the worst days of the pandemic ended. Not many people want to spend four-figure sums on exercise equipment, especially when there are inflationary pressures still present. Total revenue dipped 4% in the fiscal third quarter, ended March 31.

It didn't help that Peloton's member base shrank 1% year over year. And the connected-fitness subscriber count, people who purchased a piece of equipment and subscribe to a service, was flat.

Barry McCarthy, who became CEO in February 2022, announced that he is stepping down. In his outgoing remarks, he called out just how difficult it has been to turn the business around. Peloton will now have two interim CEOs at the helm.

Perhaps the only bit of good news was that Peloton's net loss shrank to $167 million from $276 million in the year-ago period. Management has been aggressively implementing efficiency measures to get costs under control. And there are plans to achieve an additional $200 million in savings by the end of fiscal 2025. Peloton plans to lay off 15% of its workforce, which will certainly help the financials.

The company finally generated positive free cash flow in Q3 for the first time in more than three years. The hope is that this can continue.

The sharks are circling

During the week of May 6, shares of Peloton soared on news that there were rumors of potential interest from private equity investors to buy out the business. Because Peloton's market cap has gotten so crushed, now at $1.6 billion, it might make for a compelling target.

Private equity sponsors usually employ a strategy of trimming as much of the unnecessary costs as possible. However, Peloton has already embarked on this strategy.

Moreover, I wonder what progress private equity buyers could achieve that the outgoing CEO couldn't. McCarthy had previous experience at Netflix and Spotify Technology, and even this valuable time running two successful subscription businesses wasn't enough to turn things around at the troubled fitness enterprise.

This points to my belief that Peloton's challenges aren't going to go away anytime soon.

Risk with probably no reward

Even after the stock's huge recent run-up, it's still down 97% from its all-time high (as of May 13), which was set in January 2021. It's wild to think that Peloton once sported a $49 billion market cap. Investors have completely soured on this company. Given the ongoing financial struggles, it makes sense why.

The current price-to-sales ratio of 0.6 is insanely cheap. That multiple is significantly below Peloton's historical average of 4.7.

I can see why some investors, particularly those who are willing and able to take on more risk, would be thinking about buying this company with $100 right now. But I think that would be a mistake.

There's absolutely no reason to believe that the subscriber base and revenue can rise steadily over the long term. And I haven't even mentioned the lack of consistent profitability. With each passing quarter, Peloton proves once again that it's pedaling in the wrong direction. Avoid the stock at all costs.

Should you invest $1,000 in Peloton Interactive right now?

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix, Peloton Interactive, and Spotify Technology. The Motley Fool has a disclosure policy.

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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